On January 2, 2020, GCP Corporation issues $1,060,000 of 4 percent bonds at a time when the market rate of interest is 5 percent. These bonds mature in five years and pay interest semi-annually. (Click the icon to view the amortization table.) On April 30, 2020, GCP Corporation issues $1,060,000 of five-year, 4 percent bonds that pay interest semi-annually. The bonds are issued when the market interest rate is 3 percent (Click the icon to view the amortization table.) Complete parts (a) and (b). a. Will the periodic amount of interest expense increase or decrease over the life of a bond issued at a discount under the effective-interest amortization method? The periodic amount of interest expense because the carrying amount of the bond toward maturity value. b. Will the periodic amount of interest expense increase or decrease for a bond issued at a premium? Assume the effective-interest method of amortizing the premium. The periodic amount of interest expense because the carrying amount of the bond toward maturity value. Amortization Table bonds issued January 2, 2020 - D E Amortization Table B Interest Expense (2.5% of Interest Payment Preceding Bond Discount Semi-annual (2% of Carrying Amortization Interest Period Maturity Value) Amount) (A-B) Issue Date 1 $ 21,200 $ 25,340 $ 4,140 2 21,200 25,444 4,244 3 21,200 25,550 4,350 4 21,200 25,659 4,459 5 21,200 25,770 4,570 6 21,200 25,884 4,684 21,200 26,002 4,802 8 21,200 26,122 4,922 9 21,200 26,245 5,045 10 21,200 26,370 5,170 Unamortized Discount Account Balance (Preceding D - Current C) $ 46,386 42,246 38,002 33,652 29,193 24,623 19,939 15,137 10,215 5,170 3 4 Bond Carrying Amount (1,060,000 -D) $ 1,013,614 1,017,754 1,021,998 1,026,348 1,030,807 1,035,377 1,040,061 1,044,863 1,049,785 1,054,830 1,060,000 7 8 0 Print Done Amortization Table - bonds issued April 30, 2020 D E Amortization Table A B Interest Expense (1.5% of Interest Payment Preceding Bond Premium (2% of Carrying Amortization Maturity Value) Amount) (A-B) Semi-annual Interest Period Issue Date 1 $ $ 2 3 3 Unamortized Premium Account Balance (Preceding D - Current C) 48,878 44,311 39,676 34,971 30,196 25,349 20,429 15,435 10,367 5,223 21,200 21,200 21,200 21,200 21,200 21,200 21,200 21,200 21,200 21,200 4 16,633 16,565 16,495 16,425 16,353 16,280 16,206 16,132 16,056 15,977 Bond Carrying Amount (1,060,000 + D) $ 1,108,878 1,104,311 1,099,676 1,094,971 1,090,196 1,085,349 1,080,429 1,075,435 1,070,367 1,065,223 1,060,000 4,567 4,635 4,705 4,775 4,847 4,920 4,994 5,068 5,144 5,223 6 7 8 9 10 0 Print Done
