Question

E10-10 LO10-4 Preparing a Bond Amortization Schedule for a Bond Issued at a Discount and Determining Reported Amounts On January 1 of this year, Ikuta Company issued a bond with a face value of $100,000 and a coupon rate of 5 percent. The bond matures in three years and pays interest every December 31. When the bond was issued, the annual market rate of interest was 6 percent. Ikuta uses the effective interest amortization method. Required: 1. Complete a bond amortization schedule for all three years of the bond's life. 2. What amounts will be reported on the income statement and balance sheet at the end of Year 1 and of Year 1 and Year 2?

Answer 1

Ikuta Company - Table values are based on :
n = 3
I = 6 %
Cash flow	Table value	Amount	Present Value
Par value	0.8396	100000	83960
Interest	2.673	5000	13365	( 100000 * 5 % = 5000 )
Price			97325
Part A - Bond Amortisation schedule
Date	A.Cash paid	B.Intt. Exp.( carrying value * 6%)	C. discount amortisation (B- A)	D.Carrying value (D+C)
Jan. 1, Year 1				97325
Dec. 31, Year 1	5000	5840	840	98165
Dec. 31, Year 2	5000	5890	890	99055
Dec. 31, Year 3	5000	5945	945	100000
Part B
	Year 1	Year 2
Intt. Exp.( IS)	5840	5890
Bond liability ( BS )	98165	99055