Question

Question 3 of 5 -11 View Policies Current Attempt in Progress The following amortization and interest schedule reflects the issuance of 10-year bonds by Riverbed Corporation on January 1, 2014, and the subsequent interest payments and charges. The company's year-end is December 31, and financial statements are prepared once yearly. Amortization Schedule Cash Interest Year 1/1/2014 2014 2015 2016 Amount Unamortized $21.234 20,024 18,669 Carrying Value $ 166,666 167,876 $20,000 20,145 2017 2018 2019 2020 2021 2022 $18,790 18,790 18,790 18,790 18,790 18.790 18.790 18,790 18,790 18.790 20,308 20,490 20,694 20.922 21,178 21,465 21,786 22,146 17.151 15,451 13,547 11,415 9,027 6,352 3,356 169,231 170,749 172,449 174,353 176,485 178,873 181,548 184,544 187,900 2023 (a) Indicate whether the bonds were issued at a premium or a discount.

Answer 1

a) Bonds are issued at discount. In the amortization table, issue price on 1/1/2014 is $166,000 and in the last year face value of the bonds is $187,900. Issue price is less than the face value, hence the bonds are issued at discount. b) Effective-interest method. If the striaght line method is used, interest expense will be same for all the years. Interest expenses is increasing every years which indicates that the effective interest method is used. c) Stated interest rate = $18,790/$187,900 = 10% Effective interest rate = $20,000/$166,666 = 12%

Credit d) Date Account Titles and Explanation 01-01-2014 Cash Discount on bonds payable Bonds payable (To record the issuance of bonds) Debit $ 166,666 $ 21,234 $ 187,900 Credit Debit 20,000 $ e) Date Account Titles and Explanation 31-12-2014 Interest expense Discount on bonds payable ($20,000 - $18,790) Interest payable (To record the intesest expense) $ $ 1,210 18,790 Credit f) Date Account Titles and Explanation 01-12-2021 Interest payable Cash (To record the interest paid) Debit 18,790 $ $ 18,790 $ 21,465 31-12-2021 Interest expense Discount on bonds payable ($21,465-$18,790) Interest payable (To record the interest expense) $ $ 2,675 18,790