Assignment
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 amortization schedule below pertains to the bonds:
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January 1, Year 1
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|
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$48,813
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End of Year 1
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$3,600
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$3,417
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$183
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$48,630
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End of Year 2
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$3,600
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$3,404
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$196
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$48,434
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End of Year 3
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$3,600
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$3,390
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$210
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$48,224
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End of Year 4
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$3,600
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$3,376
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$224
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$48,000
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a. How much cash will be disbursed for interest each period and in total over the life of the bonds?
b. What is the coupon rate? (Enter your answer as a percentage rounded to 1 decimal place (i.e. 0.123 should be entered as 12.3).)
c. What was the annual market rate of interest on the date the bonds were issued? (Enter your answer as a percentage rounded to the nearest whole percent (i.e. 0.123 should be entered as 12).)
d. What amount of interest expense will be reported on the income statement for Year 2 and Year 3?(Round your final answers to nearest whole dollar amount.)
e. What amount will be reported on the balance sheet at the end of Year 2 and Year 3?
Date January 1, Year 1 End of Year 1 End of Year 2 End of Year 3 End of Year 4 Cash 3,600 3,600 3,600 3,600 Interest Amortization Balance 48,813 183 48,630 3,417 196 3,404 48,434 210 3,390 48,224 224 3,376 48,000.