Question

Swifty Company sells 10% bonds having a maturity value of $2,000,000 for $1,855,816. The bonds are dated January 1, 2017, and mature January 1, 2022. Interest is payable annually on January 1.
Instructions:
Set up a schedule of interest expense and discount amortization under the straight-line method.
Set up a schedule of interest expense and discount amortization under the effective-interest method. (Hint: The effective-interest rate must be computed.)

Answer 1

Answer:

Find attached amortization schedule for the interest expense and discount amortization under both methods.

Explanation:

Under straight line the discount amortization per year is total discount on bonds payable divided by 5 years.

Under effective method, I first of all computed the yield to maturity on the bind using rate formula in excel, the discount amortization each is the interest expense minus the coupon payment.

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