Question
Question no 1 Bond discount amortization. On June 1, 2013, Everly Bottle Company sold $400,000 in long-term bonds for $351,040. The bonds will mature in
Question no 1
Bond discount amortization.
On June 1, 2013, Everly Bottle Company sold $400,000 in long-term bonds for $351,040. The bonds will mature in 10 years and have a stated interest rate of 8% and a yield rate of 10%. The bonds pay interest annually on May 31 of each year. The bonds are to be accounted for under the effective-interest method.
Instructions
(a)Construct a bond amortization table for this problem 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 labeled. (Round to the nearest dollar.)
(b)The sales price of $351,040 was determined from present value tables. Specifically explain how one would determine the price using present value tables.
(c)Assuming that interest and discount amortization are recorded each May 31, prepare the adjusting entry to be made on December 31, 2015. (Round to the nearest dollar.)
Question no 2
Bond interest and discount amortization.
Grove Corporation issued $800,000 of 8% bonds on October 1, 2014, due on October 1, 2015. The interest is to be paid twice a year on April 1 and October 1. The bonds were sold to yield 10% effective annual interest. Grove Corporation closes its books annually on December 31.
Instructions
(a)Complete the following amortization schedule for the dates indicated.(Round all answers to the nearest dollar.)Use the effective-interest method.
CashInterest DiscountCarrying Amount
PaidExpenseAmortized of Bonds
October 1, 2014$738,224
April 1, 2015
October 1, 2015
(b)Prepare the adjusting entry for December 31, 2015. Use the effective-interest method.
(c)Compute the interest expense to be reported in the income statement for the year ended December 31, 2015.
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