Stacy Company issued five-year, 10% bonds with a face value of $10,000 on January 1, 2017. Interest

Question:

Stacy Company issued five-year, 10% bonds with a face value of $10,000 on January 1, 2017. Interest is paid annually on December 31. The market rate of interest on this date is 12%, and Stacy Company receives proceeds of $9,279 on the bond issuance.

Required

1. Prepare a five-year table (similar to Exhibit 10-4) to amortize the discount using the effective interest method.

2. What is the total interest expense over the life of the bonds? Cash interest payment? Discount amortization?

3. Identify and analyze the effect of the payment of interest and the amortization of discount on December 31, 2019 (the third year), and determine the balance sheet presentation of the bonds on that date.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...