Problem: Assume the same set of facts for Stacy Company as in Problem 10-2 except that the market rate of interest of January 1, 2008, is 8% and the proceeds from the bond issuance equal $10,803.
Required to do:
1. Prepare a five year table (similar to Exhibit 10-5) to amortize the premium using effective interest method
2. What is the total interest expense over the life of the bonds? cash interest payment? premium amortization?
3. Identify and analyze the effect of the payment of interest and the amortization of premium on December 31, 2010 (the third year), and determine the balance sheet presentation of the bonds on the date.