Question

Required information [The following information applies to the questions displayed below.) On January 1, 2021. Splash City issues $430,000 of 8% bonds, due in 15 years, with interest payable semiannually on June 30 and December 31 each year. The market interest rate on the issue date is 9% and the bonds issued at $394,979. Required: 1. Using an amortization schedule, show that the bonds have a carrying value of $397435 on December 31, 2022. (Round Interest expense to nearest whole dollar.) Cash Paid Interest Expense Increase in Carrying Value Carrying Value Date 01/01/2021 06/30/2021 12/31/2021 06/30/2022 12/31/2022

Answer 1

1
Date	Cash paid	Interest expense	Increase in Carrying value	Carrying value
01/01/2021				394979
06/30/2021	17200	17774	574	395553
12/31/2021	17200	17800	600	396153
06/30/2022	17200	17827	627	396780
12/31/2022	17200	17855	655	397435
2
		Debit	Credit
Dec 31,2022	Bonds payable	430000
	Loss on redemption of Bonds	109435
	Discount on Bonds payable		32565	=430000-397435
	Cash		506870
Cash paid = Face amount × 4% Stated rate
Interest expense = Carrying value × 4.5% Market rate
Increase in carrying value = Interest expense - Cash paid