Presented here is a partial amortization schedule for Rosebud Company which sold $300,000 of 5-year, 10% bonds on January 1, 2020, for $318,000 and uses annual straight-line amortization. Which of the following amounts should be shown in cell (iv)?

Question

Presented here is a partial amortization schedule for Rosebud Company which sold $300,000 of 5-year, 10% bonds on January 1, 2020, for $318,000 and uses annual straight-line amortization.  Which of the following amounts should be shown in cell (iv)?

Quizplus · Accepted Answer

To find the amount to be shown in cell (iv), we need to first calculate the annual interest expense using the straight-line method:

Annual interest expense = (Bonds payable - Discount) / # of years
= ($300,000 - $18,000) / 5 
= $56,400

Next, we need to calculate the portion of the bond discount that is amortized each year:

Annual amortization of discount = Bond discount / # of years 
= $18,000 / 5 
= $3,600

Finally, we can use the formula for the carrying value of the bonds at the end of each year:

Carrying value = Bonds payable - Accumulated amortization of discount

Using this formula and the information provided in the partial amortization schedule, we can determine that the carrying value of the bonds at the end of year 2 is $296,400, which corresponds to answer choice D ($14,400).

Presented Here Is a Partial Amortization Schedule for Rosebud Company