Question

On January 1, 2017, Larkspur Company purchased $440,000, 10% bonds of Aguirre Co. for $407,614. The bonds were purchased to yield 12% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2022. Larkspur Company uses the effective-interest method to amortize discount or premium. On January 1, 2019, Larkspur Company sold the bonds for $409,094 after receiving interest to meet its liquidity needs.

Prepare the amateur eyes is your schedule for the bonds.

Answer 1

Period Carrying coupon Interest Amortization End Carrying

July 2017 407,614 22000 24456.84 2456.84 410,071

Dic 2017 410,071 22000 24604.25 2604.25 412,675

July 2018 412,675 22000 24760.51 2760.51 415,436

Dec 2018 415,436 22000 24926.14 2926.14 418,362

Loss on sale 9,268

Step-by-step explanation:

The interest expense will be determinate as the market rate times carrying value

Then, it will amortize between the difference in the actual cash payment and the interest expense calculate with the market rate

The carrying value will increase over time as it needs to match the face value at maturity.

Then after Dec 31 2019 we sale the bond and we determinate the loss on sale:

418,362 - 409,094 = 9,268