On January 1, Year 1, Reese Incorporated issued bonds with a face value of $120,000, a stated rate of interest of 8 percent, and a five-year term to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 7 percent at the time the bonds were issued. The bonds sold for $124,920. Reese used the effective interest rate method to amortize the bond discount.

Required
a. Prepare an amortization table as shown next:

b. What item(s) in the table would appear on the Year 3 balance sheet?
c. What item(s) in the table would appear on the Year 3 income statement?
d. What item(s) in the table would appear on the Year 3 statement of cash flows?

Transcribed Image Text:

Interest Expense Discount Amortization Carrying Value 124,920 124,064 Cash Payment January 1, Year 1 December 31, Year 1 December 31, Year 2 December 31, Year 3 December 31, Year 4 December 31, Year 5 Totals 856 8,744 9,600 ? ? ? 43,080 4,920 48,000