Question - Amortization of Premium
Stacy Company issued five-year, 10% bonds with a face value of $10,000 on January 1, 2014. Interest is paid annually on December 31. The market rate of interest of January 1, 2014, is 8% and the proceeds from the bond issuance equal $10,799.
Required:
1. Prepare a five-year table (similar to Exhibit 10-5) to amortize the premium using the effective interest method. Enter all amounts as positive numbers. If required, round all calculations and final answers to the nearest dollar.
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, 2016 (the third year)
4. How does this entry affect the accounting equation?
If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.
5. Determine the balance sheet presentation of the bonds on December 31, 2016.