Prepare a bond interest expense and discount amortization schedule for the bonds through June $30,2020.$

Analysis Instruction

POLK INCORPORATED

Bond Interest Expense and Discount Amortization Schedule $($Partial$)$

Effective Interest Method $7\%$ Bonds Sold to Yield $6\%$

Date Cash Credit Interest Expense Debit Unamortized Discount Credit Book Value of Bonds

$07/01/19$

$

$

$

$$191,163\mathrm{.}22$

$12/31/19$

$$6,440\mathrm{.}00$

$

$

$

$06/30/20$

$

$

$

$

Points:

$5/12$

Check My Work

July $1,2019$: At the time of issue, the issuing company records the face value of bonds in a Bonds Payable account, and the proceeds received as a debit to the Cash account. If the bonds are issued with a contract interest rate that is greater than the effective interest rate the issuer will record a premium in a separate account titled Premium on Bonds Payable.

Dec. $31,2019$:

Date

Cash Credit

Interest Expense Debit

Amortization of Bond Premium $($Debit$)$

Book Value of Bonds

$07/01/19191,163\mathrm{.}22$

$12/31/196,440$

$06/30/20$

Above is a partially completed Premium Amortization Schedule. It provides an easy way to organize effective interest calculations. You should compute the annual effective interest expense amount as follows $($Interest Expense $=$ Effective Interest Rate x Book Value at Beginning of Period$).$ When interest is paid semiannually, you should divide the effective rate by the interest periods per year to determine the effective rate per semiannual period $($for example, $16\%-$: $2$ periods $=8\%$ semiannual rate$).$ A portion of the bond discount or premium is amortized, and this amortization is the difference between the amount of interest expense and the cash payment.