Question

On January 1 of this year, Olive Corporation issued bonds. Interest is payable once a year on December 31. The bonds mature at the end of four years. Olive uses the effective-interest amortization method. The partially completed amortization schedule below pertains to the bonds: Date Cash Interest Amortization Balance January 1, Year 1 $ 48,813 End of Year 1 $ 3,600 $ 3,417 $ 183 48,630 End of Year 2 ? ? ? 48,434 End of Year 3 ? ? 210 ? End of Year 4 ? 3,376 ? 48,000

Answer 1

Answer:

See the explanation

Explanation:

Date                 Cash     Interest Exp.    Amortization    Balance

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Jan. 1, Year 1                                                                     48,813

End of Year 1  3,600            3,417              183               48,630  

End of Year 2  3,600           3,404            196               48,434

End of Year 3  3,600           3,390           210               48,224

End of Year 4  3,600           3,376             224              48,000

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Calculations:

Cash = 3,600 (Fixed amount)

Interest Exp. = 3,417 / 48,813 = 7%

End oy year 2:

Cash 3,600

Interest Expense 48,630 * 7% = 3,404

Amortization 3,600 - 3,404 = 196

End oy year 3:

Cash 3,600

Interest Expense 48,434 * 7% = 3,390

Balance 48,434 - 210 = 48,224

End oy year 4:

Cash 3,600

Amortization 3,600 - 3,376 = 224

Hope this helps!