Question: On January 1, Year 1, Valley Enterprises
On January 1, Year 1, Valley Enterprises issued bonds with a face value of $60,000, 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 9 percent at the time the bonds were issued. The bonds sold for $57,666. Valley used the effective interest rate method to amortize the bond discount.
Required:
a. Prepare an amortization table as shown next:
b. What item(s) in the table would appear on the Year 2 balance sheet?
c. What item(s) in the table would appear on the Year 2 income statement?
d. What item(s) in the table would appear on the Year 2 statement of cash flows?
Transcribed Image Text:
Cash Interest Discount Carrylng Value Payment Expense Amortization January 1, Year 1 December 31, Year 1 December 31, Year 2 December 31, Year 3 57,666 4,800 390 58,056 5,190 ? ? ? ? ? ? December 31, Year 4 ? ? December 31, Year 5 ? ? ? Totals 24,000 26,334 2,334
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