Question

On January 1, when the market interest rate was 8%, Seton Corporation completed a $220,000, 7% bond issue for $205,240. The bonds pay interest each December 31 and mature in 10 years. Seton amortizes the bond discount using the straight-line method. Prepare a bond discount amortization schedule for these bonds.

Answer 1

Solution :

Period   Interest     Cash paid  Discount    bond      discount on         carrying

ended   expense                      amortised  payable  bonds payable     value

            (carrying x   (220000   ( interest

                8% )            x 7% )      expense-

                                                   cash paid)

Start                                                             $220,000     $14,760      $205,240

1            $16,419     $15,400      $1,019        $220,000     $13,741       $206,259

2           $16,501     $15,400      $1,101         $220,000     $12,640      $207,360

3           $16,589    $15,400      $1,189         $220,000    $11,452       $208,548

4           $16,684    $15,400      $1,284        $220,000     $10,168      $209,832

5           $16,787     $15,400      $1,387       $220,000      $8,781         $211,219

6           $16,898    $15,400      $1,498       $220,000      $7,284        $212,716

7           $17,017      $15,400     $1,617         $220,000      $5,666      $214,334

8          $17,147      $15,400      $1,747         $220,000     $3,919         $216,081

9          $17,286     $15,400      $1,886       $220,000      $2,033       $217,967

10        $17,437      $15,400      $2,037       $220,000      ($0)            $220,004