Amortization of Premium

Stacy Company issued five-year, 10% bonds with a face value of $10,000 on January 1, 2014. Interest is paid annually on December 31. The market rate of interest of January 1, 2014, is 8% and the proceeds from the bond issuance equal $10,799.

Required:

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1. Prepare a five-year table (similar toExhibit 10-5) to amortize the premium using the effective interest method. Enter all amounts as positive numbers. If required, round all calculations and final answers to the nearest dollar.

*Note: Due to rounding you will have to adjust the interest expense DOWN to the nearest dollar 12/31/18.

Stacy Company
Premium Amortization
Effective Interest Method of Amortization
Date	Cash Interest 10%	Interest Expense 8%	Premium Amortized	Carrying Value
1/01/14	$
12/31/14	$	$	$
12/31/15
12/31/16
12/31/17
12/31/18
Totals	$	$	$

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

Interest expense	$
Cash interest payment
Premium amortized	$

3. Identify and analyze the effect of the payment of interest and the amortization of premium on December 31, 2016 (the third year)

Activity	- Select your answer -OperatingInvestingFinancingInvesting and FinancingCorrect 1 of Item 3
Accounts	- Select your answer -Cash Increase, Premium on Bonds Payable Decrease, Interest Expense IncreaseCash Increase, Premium on Bonds Payable Decrease, Interest Expense DecreaseCash Decrease, Premium on Bonds Payable Decrease, Interest Expense IncreaseCash Decrease, Premium on Bonds Payable Decrease, Interest Expense DecreaseCorrect 2 of Item 3
Statement(s)	- Select your answer -Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementCorrect 3 of Item 3

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.

Balance Sheet		Income Statement
Assets	=	Liabilities	+	Stockholders' Equity		Revenues		Expenses	=	Net Income
- Select your answer -Bonds PayableCashInterest PayablePremium on Bonds PayableUnearned Interest RevenueNo EntryCorrect 1 of Item 4		- Select your answer -Bond PayableCashInterest PayablePremium on Bonds PayableUnearned Interest RevenueNo EntryCorrect 3 of Item 4			- Select your answer -Bond PayableCashInterest PayablePremium on Bonds PayableUnearned Interest RevenueNo EntryCorrect 6 of Item 4		- Select your answer -Bonds PayableCashDiscount on Bonds PayableInterest ExpenseInterest PayableNo EntryCorrect 8 of Item 4

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Determine the balance sheet presentation of the bonds on December 31, 2016.

Stacy Company
Balance Sheet (Partial)
December 31, 2016
	$
$