Question

Exercise 17-3 (Part Level Submission) On January 1, 2017, Carla Company purchased 12% bonds having a maturity value of $270,000, for $290,470.00. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest receivable January 1 of each year. Carla Company uses the effective interest method to allocate amortised discount or premium. The bonds are classified in the held-to-maturity category. (a) Carrying Amount of Bonds (b) Prepare a bond amortization schedule. (Round answers to 2 decimal places, .. 2,525.25.) Schedule of Interest Revenue and Bond Premium Amortization Effective-Interest Method Cash Interest Premium Date Received Revenue Amortized 1/1/17 s 1/1/18 1/1/19 1/1/20 1/1/21 1/1/22 SHOW LIST OF ACCOUNT LINK TO TEXT Attempts: 0 of 3 used SAVE FOR LATER

Answer 1

Correct Answer:

Effective Interest Amortization Table
Formula Used	(270,000*12%)	Last year’s Carrying value of bond* Market Rate of Interest (10%)	Interest Expense - Cash Paid	Last year's Carrying value of Bond - current year's Premium amortized
Date	cash paid	Interest Expense	Premium Amortized	Carrying value of Bond
1/1/17		-	-	$                2,90,470
1/1/18	$                            32,400	$                                       29,047	$                    (3,353)	$                2,87,117
1/1/19	$                            32,400	$                                       28,712	$                    (3,688)	$                2,83,429
1/1/20	$                            32,400	$                                       28,343	$                    (4,057)	$                2,79,372
1/1/21	$                            32,400	$                                       27,937	$                    (4,463)	$                2,74,909
1/1/22	$                            32,400	$                                       27,491	$                    (4,909)	$                2,70,000

End of answer.

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