Answer:
1. Total of amortisation for 3 years = 16+17+19 = 52
Bonds issue price = 1000 - 52 = $948
2.
Bond is sold at discount.
Amount of discount = Amount of amortisation over 3 years
= $52
3.
Amount to be shown in balancesheet will be inclusive of the amortisation charge for the year
Bonds payable at the end of Year 1 = 948 + 16 = 964
Bonds payable at the end of Year 2 = 964 + 17 = 981
4.
a,
$60 is the amount of interest paid per annum. This is calulated on the facevalue of bond
$1,000x x6% = %60
b,
$77 is the interest expense for Year 2.
This is sum of Interest paid and Amortisation charge for the year
= 60 + 17 =77
c,
$17 is the amortization expence for Year 2
Opening balance of Bonds payable for Year 2 = $964
Market rate of interest = 8%
Interest charge for Year 2 = $77
Cash paid as interest = $60
Hence amortisaton charge for Year 2 = Interest expense - Interest paid = $77 - $60 = $17
d,
$981 is the balnce of balance of bonds payble after Year 2
Balance for Year 2 = Opening balance payable + Amortisation expence for the Year (arived from Step 4c above) = $964 + $17
= $981
