Question

On january 1, 2021, loop raceway issued 630 bonds, each with a face value of $1,000, a stated interest rate of 5 percent paid annually on december 31, and a maturity date of december 31, 2023. on the issue date, the market interest rate was 6 percent, so the total proceeds from the bond issue were $613,148. loop uses the straight-line bond amortization method and adjusts for any rounding errors when recording interest in the final year.

required:
1. prepare a bond amortization schedule.

Answer 1

To prepare a bond amortization schedule, calculate the annual interest payment and discount rate for each year. Use the straight-line bond amortization method. The bond amortization schedule shows the interest expense, interest payment, amortization of discount, and discount balance for each year.

Step-by-step explanation:

To prepare a bond amortization schedule, we will start by calculating the annual interest payment. The face value of each bond is $1,000 and the stated interest rate is 5%, so the annual interest payment is $1,000 * 5% = $50. Each year, the bond will pay $50 in interest.

Next, we need to calculate the discount rate for each year. The market interest rate was 6% at the time of the bond issuance, so the discount rate for the first year is 6%. The discount rate for the second year is also 6%. The discount rate for the final year will be the market interest rate at that time.

Using the straight-line bond amortization method, the bond amortization schedule can be constructed as follows:

YearInterest ExpenseInterest PaymentAmortization of DiscountDiscount Balance2021$30$50$20$613,1282022$30$50$20$613,1082023$30$50$20$613,088