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Headland Co
Headland Co. sells $451,000 of 8% bonds on March 1, 2020. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2023. The bonds yield 12%. Give entries through December 31, 2021. Prepare a bond amortization schedule using the effective-interest method for discount and premium amortization Amortize premium or discount on interest dates and at year-end. (Round answers to decimal places, eg. 38,548.)
Schedule of Bond Discount Amortization Effective-Interest Method Bonds Sold to Yield Date Cash Paid Interest Expense Discount Amortized Carryin Amount Bonds 3/1/20 $ 9/1/20 3/1/21 9/1/21 3/1/22 9/1/22 3/1/23 9/1/23
Expert Solution
| 1.Date | 2.Cash Paid |
3.Interest Expense ( 5 * 6%) |
4.Discount Amortized ( 3 - 2 ) |
5. Carrying Amount Bonds |
| 03/01/20 | $4,00,647 | |||
| 09/01/20 | $18,040 | $24,039 | $5,999 | $4,06,646 |
| 03/01/21 | $18,040 | $24,399 | $6,359 | $4,13,005 |
| 09/01/21 | $18,040 | $24,780 | $6,740 | $4,19,745 |
| 03/01/22 | $18,040 | $25,185 | $7,145 | $4,26,890 |
| 09/01/22 | $18,040 | $25,613 | $7,573 | $4,34,463 |
| 03/01/23 | $18,040 | $26,068 | $8,028 | $4,42,491 |
| 09/01/23 | $18,040 | $26,549 | $8,509 | $451,000 |
| $50,353 |
Working Notes :-
i) Semi Annual Interest Amount = $451,000* 8% / 2 = $18,040
ii) Redemption value = $451,000
PV Factor for 6%( 12% / 2 ) at 7th year = 0.665057
Present Value of Redemption amount = $451,000 * 0.665057 = 2,99,940.76
iii) PV annuity Factor for 6% (12% / 2 ) For 7 years = 5.58238
Present Value Annuity interest = $18,040 * 5.58238 = $1,00,706.16
iv) Intrinsic value of the bond = Present value annuity interest + Redemption value
= $1,00,706.16 + $2,99,940.76
= $ 4,00,647
v) Discount to be amortized = $4,51,000 - $4,00,647
= $50,353
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