Question

On January 1, Year 1, Young Company issued bonds with a face value of $123,000, a stated rate of interest of 16 percent, and a 10-year term to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 15 percent at the time the bonds were issued. The bonds sold for $129,173. Young used the effective interest rate method to amortize the bond premium.

Prepare an amortization table.

Answer 1

Answer:

The carrying value is $123,000  at year 10

Explanation:

The amortization schedule shows how the bond interest  expense increases the bond value in each year before the coupon payment reduces it ,to leave a balance as carrying value at end of the year.

The schedule also shows how bond premium is amortized in each year before the bond is eventually retired at year 16.

The schedule is better handled with a spreadsheet due the large volume data required as found in the attached.

At the end of the 10th year the bond carrying value equals its face value of $123,000