Question

Metlock Company sells 10% bonds having a maturity value of $1,410,000 for $1,308,350. The bonds are dated January 1, 2020, and mature January 1, 2025. Interest is payable annually on January 1. 

Set up a schedule of interest expense and discount amortization under the straight-line method. (Round answers to 0 decimal places, e.g. 38,548.) 

Answer 1

Solution

Schedule of Discount Amortization
Straight-Line Method
Year	Cash Paid	Interest expense	Discount Amortized	Carrying Amount of Bonds
Jan 1, 2020				$ 1,308,350
Jan 1, 2021	$ 141,000	$ 161,330	$ 20,330	$ 1,328,680
Jan 1, 2022	$ 141,000	$ 161,330	$ 20,330	$ 1,349,010
Jan 1, 2023	$ 141,000	$ 161,330	$ 20,330	$ 1,369,340
Jan 1, 2024	$ 141,000	$ 161,330	$ 20,330	$ 1,389,670
Jan 1, 2025	$ 141,000	$ 161,330	$ 20,330	$ 1,410,000

Working

Bond issue price	$ 1,308,350
Face value	$ 1,410,000
Discount on bonds payable	$ 101,650
Number of Interest payments	5
Discount/ premium to be amortized per year	$ 20,330