Standard Autoparts Inc. issued $100,000 of 7%, 10-year bonds at a price of 87 on January 31,

Question:

Standard Autoparts Inc. issued $100,000 of 7%, 10-year bonds at a price of 87 on January 31, 2017. The market interest rate at the date of issuance was 9%, and the standard bonds pay interest semi-annually.

1. Prepare an effective-interest amortization table for the bonds through the first three interest payments. Use Exhibit 8-3, page 393, as a guide, and round amounts to the nearest dollar.

2. Record Standard's issuance of the bonds on January 31, 2017, and payment of the first semi-annual interest amount and amortization of the bonds on July 31, 2017. Explanations are not required?

Debt Amortization for a Bond Discount

Panel A - Bond Data

Standard Autoparts Inc. issued $100,000 of 7%, 10-year bonds at

Panel B-Amortization Table

*Adjusted for the effect of rounding.
Notes
*Column B The semi-annual interest payments are constant (fixed by the bond contract).
*Column C The interest expense each period = Preceding bond carrying amount Ã— Market interest rate.
Interest expense increases as the bond carrying amount (F) increases.
*Column D The excess of interest expense (C) over interest payment (B) is the discount amortization (D) for the period.
*Column E The discount balance (E) decreases when amortized.
*Column F The bond carrying amount (F) increases from $96,149 at issuance to $100,000 at maturity.