Question

On January 1, Year 1, Parker Company issued bonds with a face value of $62,000, a stated rate of interest of 11 percent, and a five-year term to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 13 percent at the time the bonds were issued. The bonds sold for $57,639. Parker used the effective interest rate method to amortize the bond discount. (Round your intermediate calculations and final answers to the nearest whole dollar amount.)

Answer 1

Answer and Explanation:

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Required a. Prepare an amortization table Discount Cash Payment Expense Amortization Carrying Value Interest Date January 1, 2016 December 31, 2016 December 31, 2017 December 31, 2018 December 31, 2019 December 31, 2020 Totals 57,639 6,820 7,493 673 58,312 b. What is the carrying value that would appear on the 2019 balance sheet? Carrying value c. What is the interest expense that would appear on the 2019 income statement? Interest expense d. What is the amount of cash outflow for interest that would appear in the operating activities section of the 2019 statement of cash flows? or as interest

a. The preparation of the amortization table is presented belo

Date Cash payment (A) Interest expense (B) Discount amortization (B - A) Carrying value

January 1, 2016 $57,639

December 31,2016 $6,820 $7,493 $673 $58,312

($62,000 × 11%) ($57,639 × 13%) ($7,493 - $6,820)

($57,639 + $673)

December 31,2017 $6,820 $7,581 $761 $59,073

December 31,2018 $6,820 $7,679 $859 $59,932

December 31,2019 $6,820 $7,791 $971 $60,903

December 31,2020 $6,820 $7,917 $1,097 $62,000

Totals $341,00 $38,461 $4,361

b Therefore the carrying value for the year 2019 is $60,903 c. Hence, the Interest expense for the year 2019 is $7,791

d. Cash outflow for interest $6,820