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 6%, the bonds will issue at $644,161.

1. Complete the first three rows of an amortization schedule. Use Illustration 9–7, 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 $644,161 times the market rate of 6%.

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

Illustration 9-7

Transcribed Image Text:

(1) (2) (3) (4) (5) Carrying Interest Decrease in Date Cash Paid Expense Carrying Value Value Prior Carrying Value - (4) Face Amount x Stated Rate Carrying Value x Market Rate (2) – (3) $107,439 107,162 1/1/2021 6/30/2021 $3,500 $3,223 $277 12/31/2021 3,500 3,215 285 106,877 * 100,956 6/30/2030 3,500 3,029 471 100,485 12/31/2030 3,500 3,015 485 100,000