Amortization of Discount

Stacy Company issued five-year, 9% 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 11%, and Stacy Company receives proceeds of $9,261 on the bond issuance.

Required:

Refer to the tables above for present value factors.

1. Prepare a five-year table to amortize the discount using the effective interest method.

Round the last calculation as needed to bring bond to value. If required, round all calculations to the nearest dollar. Enter all amounts as positive numbers.

Stacy Company Discount Amortization Effective Interest Method of Amortization

Date	Cash Interest 9%	Interest Expense 11%	Discount Amortized	Carrying Value
1/01/17
12/31/17
12/31/18
12/31/19
12/31/20
12/31/21
Totals	$

2. What is the total interest expense over the life of the bonds? cash interest payment? discount amortization?

Total interest expense	$
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).

Activity	Financing or Investing or Investing and Financing or Operating
Accounts
Statement(s)

How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

Stacy Company Balance Sheet (Partial) December 31, 2019

	$- -
	- -