Interest Expense and Amortization

The bond pays interest based on the terms of the bond and the issuer records interest expense based on the actual interest expense after the discount or premium is factored into the amount of interest paid. The discount or premium is amortized over the life of the bond.

1. When a discount is amortized, the amortization will be recorded with a(n) - Select your answer -increasedecreaseCorrect 1 of Item 3 to - Select your answer -Discount on Bonds PayablePremium on Bonds PayableCorrect 2 of Item 3 . When a premium is amortized, the amortization will be recorded with a(n) - Select your answer -increasedecreaseCorrect 3 of Item 3 to - Select your answer -Discount on Bonds PayablePremium on Bonds PayableCorrect 4 of Item 3 .

2. Fill in the amortization table for each scenario using the effective interest rate method. Roll over the headings for help with the calculations.

Enter all amounts as positive numbers. If required, in your computations round the interest expense to the nearest dollar. (Note: Due to rounding issues, some amounts have been provided for you in the tables.) Assume the annual stated rate is 8% and effective rate is 12%.

Semi-annual Period	Cash	Interest Expense	Discount on Bonds Payable	Discount on Bonds Payable Balance	Carrying Value
				9,218	123,782
1	5,320	7,427	2,107	7,111	125,889
2
3				2,511
4			2,509	-	133,000

Assume the stated rate is 8% and effective rate is 4%.

Semi-annual Period	Cash	Interest Expense	Premium on Bonds Payable	Premium on Bonds Payable Balance	Carrying Value
				10,129	143,129
1	5,320	2,863	2,457	7,672	140,672
2
3				2,608
4			2,608	-	133,000