On January 1, 2018, Parker Company issued bonds with a face value of $80,000, 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 $76,888. Parker used the effective interest rate method to amortize the bond discount. Required: Prepare an amortization table. At what amount would the bond liability appear on the 2021 balance sheet? What item (s) and amount in the table would appear on the 2021 income statement? What item (s) and amount in the table would appear on the 2021 statement of cash flows (Direct Method) and under what section the bond liability appear?

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Thumper

Business

6 June, 20:34

On January 1, 2018, Parker Company issued bonds with a face value of $80,000, 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 $76,888. Parker used the effective interest rate method to amortize the bond discount. Required: Prepare an amortization table. At what amount would the bond liability appear on the 2021 balance sheet? What item (s) and amount in the table would appear on the 2021 income statement? What item (s) and amount in the table would appear on the 2021 statement of cash flows (Direct Method) and under what section the bond liability appear?

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Ahmed Newton · Answer 1

Balance sheet:

bonds payable 80,000

discount on bonds (3.592,08)

carrying value: 76.407,92

income statment:

interest expense for 6,919.92

cash flow statment:

under financing activities

issuance of bonds for 76,888

and then interest paid on bonds (6,400)

Explanation:

Balance sheet:

we need to detemrinate the carrying valeu after the interest payment.

effective rate:

carrying value x market rate = interest expense (income statment)

76,888 x 9% = 6.919,92

cash disbursement:

face vaue x bond rate

80,000 x 8% = 6,400 (cash flowinterest paid)

amortization 519,92

carring value in the blaance sheet:

76,888 + 519.92 = 76.407,92

For the cash flow we will reocgnize the cash inflow for the bonds and the cash disbursements for the payment of interest