On June 1, 2023, Santa Ana Corp. sold 10-year, $500,000 (face value) bonds for
$438,554. The bonds have a stated interest rate of 8% and a yield of 10% and
pay interest annually on May 31 of each year. The bonds are to be accounted for
using the effective-interest method.
Instructions:
a) Construct a bond amortization table for this bond to indicate the amount of
interest expense and discount amortization at each May 31. Include only the
first four years. Make sure all columns and rows are properly labelled, and
round to the nearest dollar.
b) The sales price of $438,554 was determined from present value tables.
Explain how one would determine the price using present value tables, or by
using a calculator.
c) Assuming that interest and discount amortization are recorded each May 31,
prepare the adjusting entry at December 31, 2025 (fiscal year end). Round
values to the nearest dollar.