21 Bond Amortization LO3 On January 1 2012 Thompson Company

21. Bond Amortization LO3 On January 1, 2012, Thompson Company issues $4 million of 5-year, 8% bonds with interest payable on June 30 and December 31. Thompson amortizes any discount or premium using the straight-line method. Requirec Prepare a bond amortization schedule assuming the bonds were issued at (a) 101 and (b) 97.

Solution

a)

Date

Opening Balance

Interest payment

Premium amortization

Interest expense

Unamortized premium

Carrying amount

($4,000,000*8%*1/2)

($40,000/10 payments)

(Interest payment-Amortization)

01-01-2012

$ 0.00

$ 40,000.00

$ 4,040,000.00

30-06-2012

$ 4,040,000.00

$ 160,000.00

$ 4,000.00

$ 156,000.00

$ 36,000.00

$ 4,036,000.00

31-12-2012

$ 4,036,000.00

$ 160,000.00

$ 4,000.00

$ 156,000.00

$ 32,000.00

$ 4,032,000.00

30-06-2013

$ 4,032,000.00

$ 160,000.00

$ 4,000.00

$ 156,000.00

$ 28,000.00

$ 4,028,000.00

31-12-2013

$ 4,028,000.00

$ 160,000.00

$ 4,000.00

$ 156,000.00

$ 24,000.00

$ 4,024,000.00

30-06-2014

$ 4,024,000.00

$ 160,000.00

$ 4,000.00

$ 156,000.00

$ 20,000.00

$ 4,020,000.00

31-12-2014

$ 4,020,000.00

$ 160,000.00

$ 4,000.00

$ 156,000.00

$ 16,000.00

$ 4,016,000.00

30-06-2015

$ 4,016,000.00

$ 160,000.00

$ 4,000.00

$ 156,000.00

$ 12,000.00

$ 4,012,000.00

31-12-2015

$ 4,012,000.00

$ 160,000.00

$ 4,000.00

$ 156,000.00

$ 8,000.00

$ 4,008,000.00

30-06-2016

$ 4,008,000.00

$ 160,000.00

$ 4,000.00

$ 156,000.00

$ 4,000.00

$ 4,004,000.00

31-12-2016

$ 4,004,000.00

$ 160,000.00

$ 4,000.00

$ 156,000.00

$ 0.00

$ 4,000,000.00

b)

Date

Opening Balance

Interest payment

Discount amortization

Interest expense

Unamortized discount

Carrying amount

($4,000,000*8%*1/2)

($120,000/10 payments)

(Interest payment+Discount amortization)

01-01-2012

$ 0.00

$ 0.00

$ 0.00

$ 0.00

$ 120,000.00

$ 3,880,000.00

30-06-2012

$ 3,880,000.00

$ 160,000.00

$ 12,000.00

$ 172,000.00

$ 108,000.00

$ 3,892,000.00

31-12-2012

$ 3,892,000.00

$ 160,000.00

$ 12,000.00

$ 172,000.00

$ 96,000.00

$ 3,904,000.00

30-06-2013

$ 3,904,000.00

$ 160,000.00

$ 12,000.00

$ 172,000.00

$ 84,000.00

$ 3,916,000.00

31-12-2013

$ 3,916,000.00

$ 160,000.00

$ 12,000.00

$ 172,000.00

$ 72,000.00

$ 3,928,000.00

30-06-2014

$ 3,928,000.00

$ 160,000.00

$ 12,000.00

$ 172,000.00

$ 60,000.00

$ 3,940,000.00

31-12-2014

$ 3,940,000.00

$ 160,000.00

$ 12,000.00

$ 172,000.00

$ 48,000.00

$ 3,952,000.00

30-06-2015

$ 3,952,000.00

$ 160,000.00

$ 12,000.00

$ 172,000.00

$ 36,000.00

$ 3,964,000.00

31-12-2015

$ 3,964,000.00

$ 160,000.00

$ 12,000.00

$ 172,000.00

$ 24,000.00

$ 3,976,000.00

30-06-2016

$ 3,976,000.00

$ 160,000.00

$ 12,000.00

$ 172,000.00

$ 12,000.00

$ 3,988,000.00

31-12-2016

$ 3,988,000.00

$ 160,000.00

$ 12,000.00

$ 172,000.00

$ 0.00

$ 4,000,000.00

Date	Opening Balance	Interest payment	Premium amortization	Interest expense	Unamortized premium	Carrying amount
		($4,000,000*8%*1/2)	($40,000/10 payments)	(Interest payment-Amortization)
01-01-2012	$ 0.00				$ 40,000.00	$ 4,040,000.00
30-06-2012	$ 4,040,000.00	$ 160,000.00	$ 4,000.00	$ 156,000.00	$ 36,000.00	$ 4,036,000.00
31-12-2012	$ 4,036,000.00	$ 160,000.00	$ 4,000.00	$ 156,000.00	$ 32,000.00	$ 4,032,000.00
30-06-2013	$ 4,032,000.00	$ 160,000.00	$ 4,000.00	$ 156,000.00	$ 28,000.00	$ 4,028,000.00
31-12-2013	$ 4,028,000.00	$ 160,000.00	$ 4,000.00	$ 156,000.00	$ 24,000.00	$ 4,024,000.00
30-06-2014	$ 4,024,000.00	$ 160,000.00	$ 4,000.00	$ 156,000.00	$ 20,000.00	$ 4,020,000.00
31-12-2014	$ 4,020,000.00	$ 160,000.00	$ 4,000.00	$ 156,000.00	$ 16,000.00	$ 4,016,000.00
30-06-2015	$ 4,016,000.00	$ 160,000.00	$ 4,000.00	$ 156,000.00	$ 12,000.00	$ 4,012,000.00
31-12-2015	$ 4,012,000.00	$ 160,000.00	$ 4,000.00	$ 156,000.00	$ 8,000.00	$ 4,008,000.00
30-06-2016	$ 4,008,000.00	$ 160,000.00	$ 4,000.00	$ 156,000.00	$ 4,000.00	$ 4,004,000.00
31-12-2016	$ 4,004,000.00	$ 160,000.00	$ 4,000.00	$ 156,000.00	$ 0.00	$ 4,000,000.00