On January 1 2018 Reese Incorporated issued bonds with a fac

On January 1, 2018, Reese Incorporated issued bonds with a face value of $150,000, a stated rate of interest of 8 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 7 percent at the time the bonds were issued. The bonds sold for $156,150. Reese used the effective interest rate method to amortize bond premium.

Required

Prepare an amortization table.

What item(s) in the table would appear on the 2020 balance sheet?

What item(s) in the table would appear on the 2020 income statement?

What item(s) and amount in the table would appear on the 2020 statement of cash flows (Direct Method) and under what section the bond liability appear?

(For all requirements, Round intermediate calculations and final answers to the nearest whole dollar amount.)

Solution

Amortization Table Date Outstanding Cash Interest Premium Unamortized Outstanding in the beg Interest Expense Amortized Premium at end 01.01.18 6150 156150 31.12.18 156150 12000 10931 1069 5081 155081 31.12.19 155081 12000 10856 1144 3937 153937 31.12.20 153937 12000 10776 1224 2713 152713 31.12.21 152713 12000 10690 1310 1403 151403 31.12.22 151403 12000 10597 1403 0 150000 Req b: Balance 2020 Bonds payable (Gross) 150000 Add: Unamortized premium 2713 Bonds payable    152713 Note: Liabilities will be shown under Long term liabilities section of Total liabilities Req c: Income Statement (2020) Interest expense (debited) 10776 Req d: Cash flow Statement 2020 Cashflows from operating activities: Interest paid -12000