Santa Corporation sold a $1,000 bond on January 1, 2011. The bond specified an interest rate of 6 percent payable at the end of each year. The bond matures at the end of 2013. It was sold at a market rate of 8 percent per year. The following spreadsheet was completed:

Required:
1. What was the bond€™s issue price?
2. Did the bond sell at a discount or a premium? How much was the premium or discount?
3. What amount of cash was paid each year for bond interest?
4. What amount of interest expense should be shown each year on the income statement?
5. What amount(s) should be shown on the balance sheet for bonds payable at each year-end? (For year 2013, show the balance just before retirement of the bond.)
6. What method of amortization was used?
7. Show how the following amounts were computed for year 2012:
(a) $60,
(b) $77,
(c) $17, and
(d) $981.
8. Is the method of amortization that was used preferable?Explain.

Transcribed Image Text:

Cash Paid Interest Expense Amortization Balance $ 948 January 1, 2011 End of year 2011 End of year 2012 End of year 2013 $60 $76 $16 964 981 60 77 79 17 1,000 60 19