Assume the same set of facts for Stacy Company as in Problem 10-2 except that the market

Question:

Assume the same set of facts for Stacy Company as in Problem 10-2 except that the market rate of interest of January 1, 2010, is 8% and the proceeds from the bond issuance equal $10,803.

Required

1. Prepare a five-year table (similar to Exhibit 10-5) to amortize the premium using the effective interest method.

2. What is the total interest expense over the life of the bonds? Cash interest payment? Premium amortization?

3. Identify and analyze the effect of the payment of interest and the amortization of premium on December 31, 2012 (the third year), and determine the balance sheet presentation of the bonds on that date.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...