On January 1, 2021, White Water issues $600,000 of 7% bonds, due in 10 years, with interest payable annually on December 31 each year.

Required:

Assuming the market interest rate on the issue date is 8%, the bonds will issue at $559,740.

1. Complete the first three rows of an amortization schedule. Use Illustration 9–6, except the dates for the first three rows will be 1/1/21, 12/31/21, and 12/31/22 since interest is payable annually rather than semiannually. Interest expense for the period ended December 31, 2021, is calculated as the carrying value of $559,740 times the market rate of 8%.

2. Record the bond issue on January 1, 2021, and the first two interest payments on December 31, 2021, and December 31, 2022.

Illustration 9-6

Transcribed Image Text:

(1) (2) (3) (4) Increase in (5) Carrying Value Interest Date Cash Paid Expense Carrying Value Prior Carrying Value + (4) Face Amount x Stated Rate Carrying Value x Market Rate (3) – (2) 1/1/2021 $ 93,205 6/30/2021 $3,500 $3,728 $228 93,433 12/31/2021 3,500 3,737 237 93,670 * 99,057 * * 6/30/2030 3,500 3,962 462 99,519 12/31/2030 3,500 3,981 481 100,000