Question

On January 1 of this year, Houston Company issued a bond with a face value of $11,000 and a coupon rate of 7 percent. The bond matures in 3 years and pays interest every December 31. When the bond was issued, the annual market rate of interest was 6 percent. Houston uses the effective interest amortization method (V of $1. PVIES EVA Stand (Use the appropriate factors) from the tables provided. Round your final answer to whole dollars.) Required: 1. Complete a bond amortization schedule for all three years of the band's Enter all values as positive values.) Date Cash Interest Interest Expense Premium Amortization Book Value of Band Jan. 01. Your 1 Dec 31 Yeart Dec 31, Year 2 Dec 31, Year 3

Answer 1

Bond Amortization Schedule
Year	Cash interest	Interest expense (6%)	Premium Amortization	Carrying Value
1-Jan			295	11,295
31 Dec, Year-1	770	678	92	11,203
31 Dec, Year-2	770	672.16	98	11,105
31 Dec, Year-3	770	666.29	104	11,001

Computation of Bond Issue Price
Face Value of Bond	11,000
Annual Interest (11000*7%)	770
Market Interest Rate	6%
Period of Bon	3 Year

Issue Price of Bond= 770 X Cumm PVAF @ 6% for 3 year+ 11000*PVIF @6% at 3 year

=(770*2.67301)+(11000*0.83962)=$11295