On January 1 of this year Ikuta Company issued a bond with a

On January 1 of this year, Ikuta Company issued a bond with a face value of $200,000 and a coupon rate of 5 percent. The bond matures in 3 years and pays interest every December 31 When the bond was issued, the annual market rate of interest was 6 percent. Ikuta uses the effective-interest amortization method. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answer to whole dollars.) Required 1. Complete a bond amortization schedule for all three years of the bond\'s life Cash Interest Interest Expense Discount Amortization Book Value of Bond Date Jan. 01, Year 1 Dec. 31, Year 1 Dec. 31, Year 2 Dec. 31, Year 3 $ 10,000 $ 10,000 $ 10,000 2. What amounts will be reported on the income statement and balance sheet at the end of Year 1 and Year 2? December 31 Interest expense Bond liability Year 1 Year 2

Solution

Par value of Bonds 200000 Stated rate of interest 5% Cash interest paid 10000 Annuty factor for 3 years at 6% 2.673 Present value factor at Year-3 0.8396 Present value of interest 26730 Present value off maturity value 167920 Issue price 194650 Amortization table: Date Cash Interest Discount Book value Interest Expense Amortization at end 01.01. Yr-1 194650 31.12 Yr-1 10000 11680 1680 196330 31-12-Yr2 10000 11780 1780 198110 31.21. Yr3 10000 11890 1890 200000 31-Dec Year1 Year2 Interest expens 11680 11780 Bond liability 196330 198110