Basics of bond discount amortization

Reference no: EM13131754

On June 1, 2009, Everly Bottle Company sold $400,000 in long-term bonds for $351,040. The bonds will mature in 10 years and have a stated interest rate of 8% and a yield rate of 10%. The bonds pay interest annually on May 31 of each year. The bonds are to be accounted for under the effective-interest method.

Instructions:

(a) Construct a bond amortization table for this problem to indicate the amount of interest expense and discount amortization at each May 31. Include only the first four years. Make sure all columns and rows are properly labeled. (Round to the nearest dollar.)

(b) The sales price of $351,040 was determined from present value tables. Specifically explain how one would determine the price using present value tables.

(c) Assuming that interest and discount amortization are recorded each May 31, prepare the adjusting entry to be made on December 31, 2011. (Round to the nearest dollar.)

Reference no: EM13131754

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