Unit 4 Assignment 5 – Amortization Method
Instructions
This assessment addresses the following course objective(s):
Prepare transactions according to the Generally Accepted Accounting Principles.
Account for various transactions using industry-standard accounting software.
This assignment will help the student better understand how the Effective Interest Method functions.
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Estimated time to complete: 1 hour
Amortization
Straight Line vs Effective Interest Amortization Methods
Ranger Co. issues bonds dated January 1, information about the bonds is below. Interest is paid semiannually on June 30 and December 31.
Par 850,000
Rate 12%
Term 3
Market Rate 10%
Issue Price 893,131
Semi annual interest 51,000
1. What is the amount of the premium on these bonds at issuance?
Issue Price
Par
premium
premium amoritized per period
2. How much total bond interest expense will be recognized over the life of these bonds?
Total Bond Interest Expense Over Life of Bonds:
Amount repaid:
payments of
Par value at maturity
Total repaid
Less amount borrowed
Total bond interest expense
3. Prepare a straight-line amortization table for these bonds.
Semiannual Interest Period-End Unamortized Premium Carrying Value
1/1 yr 1
6/30 yr 1
1/1 yr 2
6/30 yr 2
1/1/ yr 3
6/30 yr 3
12/31 yr 3
3. Prepare an effective Interest: amortization of these bonds.
Semiannual Interest Period-End Cash Interest Paid Bond Interest Expense Premium Amorization Unamoritzed Premium Carrying Value
1/1 yr 1
6/30 yr 1
1/1 yr 2
6/30 yr 2
1/1/ yr 3
6/30 yr 3
12/31 yr 3
Total