On January 1, 2014, Crystal Corporation issued a $100,000 10-year bonds at 11%. Interest is paid annually on December 31. The bonds were sold for $94,349 and the yield is 12%.
Prepare an amortization schedule that determines interest at the effective interest rate.
Prepare an amortization schedule by the straight-line method.
Prepare the journal entries to record interest expense on December 31, 2016, by each of the two methods.
Explain why the pattern of interest differs between the two methods.
Assume the market rate is still 12%, what price would a second investor pay the first investor on December 31, 2016 for $35,000 of the bonds?
Your tutorial shows an amortization schedule for the effective interest method and straight line method and explains why they differ. The price of the bond at the end of the third year is shown.