Presented here is a partial amortization schedule for Graceland Company who sold $100000 five year 10% bonds on January 1 2016 for $108000 and uses annual straight-line amortization. $\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\text { BOND AMORTIZATION SCHEDULE }$
$\begin{array}{|c|c|c|c|c|c|}
\hline\text { Interest Period } & \begin{array}{c}
\text { Interest } \
\text { Paid }
\end{array} & \begin{array}{c}
\text { Interest } \
\text { Expense }
\end{array} & \begin{array}{c}
\text { Premium } \
\text { Amortization }
\end{array} & \begin{array}{c}
\text { Unamortized } \
\text { Premium }
\end{array} & \begin{array}{c}
\text { Bond Carrying } \
\text { Value }
\end{array} \
\hline \text { January 1,2016 } & & & & \$ 8,000 & \$ 108,000 \
\hline \text { January 1,2017 } & \text { (i) } & \text { (ii) } & \text { (iii) } & \text { (iv) } & \text { (v) }\
\hline
\end{array}$ Which of the following amounts should be shown in cell (v)?

Question

Quizplus · Accepted Answer

To calculate the annual straight-line amortization amount, we first need to determine the total discount on the bonds. The bonds were sold for $108,000 but have a face value of $100,000, resulting in a discount of $8,000.

To determine the annual amortization amount, we divide the discount by the number of years the bonds are outstanding:

$8,000 / 5 years = $1,600

This means that each year, $1,600 of the discount will be amortized (added to the bond carrying value), and the interest expense will be based on the carrying value of the bond.

Using this information, we can complete the partial amortization schedule:

Year | Beginning Carrying Value | Amortization | Interest Expense | Ending Carrying Value 
1 | $108,000 | $1,600 | $10,800 | $109,200 
2 | $109,200 | $1,600 | $10,920 | $110,520 
3 | $110,520 | $1,600 | $11,052 | $111,972 
4 | $111,972 | $1,600 | $11,197 | $113,569 
5 | $113,569 | $1,600 | $11,357 | $115,326

Therefore, the amount shown in Cell (v) is $106,400, which is the total of all the amortizations for the first 4 years. The annual interest payment is calculated as $100,000 x 10% = $10,000
The bond was sold at a premium of $8,000 ($108,000 - $100,000), which means the total amount paid for the bond is $108,000.
The premium is amortized over the life of the bond using straight-line amortization, meaning $1,600 ($8,000 / 5 years) is reduced from the premium each year.
Therefore, the amortized premium for the year 2016 is $8,000 - $1,600 = $6,400
The amount of interest expense to be recognized each year is $10,000 - $6,400 = $3,600
The bond's carrying value for the year 2016 can be calculated as $100,000 + $6,400 = $106,400
So the correct answer is C, which represents the carrying value of the bond at the end of the year 2016.

Presented Here Is a Partial Amortization Schedule for Graceland Company \quad

Presented Here Is a Partial Amortization Schedule for Graceland Company $\quad$