The notes to the Thorson Ltd. financial statements reported the following data on December 31, Year 1 (end of the fiscal year):

Thorson amortizes bond discounts using the effective-interest method and pays all interest amounts at December 31.

Requirements

1. Assume the market interest rate is 6% on January 1 of year 1, the date the bonds are issued.

a. Using the PV function in Excel, what is the issue price of the bonds?

b. What is the maturity value of the bonds?

c. What is Thorson’s annual cash interest payment on the bonds?

d. What is the carrying amount of the bonds at December 31, year 1?

2. Prepare an amortization table through the maturity date for the bonds using Excel. (Round all amounts to the nearest dollar.) How much is Thorson’s interest expense on the bonds for the year ended December 31, Year 4?

3. Show how Thorson would report these bonds and notes at December 31, Year 4.

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Note 6. Indebtedness Bonds payable, 1% due on December 31, Year 8... Less: Discount.. Notes payable, 6%, payable in $45,000 annual installments starting in Year 5.. $3,500,000 $270,000