Answer:
Parker Company
a. Amortization Table
Date Interest Discount
Cash Payment Expense Amortization Carrying Value
January 1, 2016 $57,639
December 31, 2016 $6,820 $7,493 $673 58,312
December 31, 2017 6,820 7,581 761 59,073
December 31, 2018 6,820 7,679 859 59,932
December 31, 2019 6,820 7,791 971 60,903
December 31, 2020 6,820 7,917 1,097 62,000
b. The carrying value that would appear on the 2019 balance sheet is:
= $60,903.
c. The interest expense that would appear on the 2019 income statement is:
= $7,791.
d. The amount of cash outflow for interest that would appear in the operating activities section of the 2019 statement of cash flows is:
= $6,820.
Explanation:
a) Data and Calculations:
Face value of bonds = $62,000
Proceeds from the issue = 57,639
Bonds discount = $4,361
Stated rate of interest = 11% paid annually on December 31
Effective rate of interest = 13%
December 31, 2016:
Interest expense = $7,493 ($57,639 * 13%)
Interest payable = $6,820 ($62,000 * 11%)
Discount amortization $673 ($7,493 - $6,820)
Bond value = $58,312 ($57,639 + $672)
December 31, 2017:
Interest expense = $7,581 ($58,312 * 13%)
Interest payable $6,820 ($62,000 * 11%)
Discount amortization $761 ($7,581 - $6,820)
Bond value = $59,073 ($58,312 + $761)
December 31, 2018:
Interest expense = $7,679 ($59,073 * 13%)
Interest payable $6,820 ($62,000 * 11%)
Discount amortization $859 ($7,679 - $6,820)
Bond value = $59,932 ($59,073 + $859)
December 31, 2019:
Interest expense = $7,791 ($59,932 * 13%)
Interest payable $6,820 ($62,000 * 11%)
Discount amortization $971 ($7,791 - $6,820)
Bond value = $60,903 ($59,932 + $971)
December 31, 2020:
Interest expense = $7,917 ($60,903 * 13%)
Interest payable $6,820 ($62,000 * 11%)
Discount amortization $1,097 ($7,917 - $6,820)
Bond value = $62,000 ($60,903 + $1,097)
