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Crume Inc-Effective interest amortization for a bond premium

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Effective interest amortization for a bond premium
On January 1, 2012, Crume Incorporated issued bonds with a face value of $100,000 a stated rate of interest of 9 percent, and a five year term to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 8 percent at the time the bonds were issued. The bonds sold for $103,993. Crume used the effective interest rate method to amortize bond discount.

Cash Payment Interest Expense Premium Amortization Carrying Value
January 1, 2012 103,993
December 31, 2012 9,000 8,319 681 103,312
December 31, 2013 ? ? ? ?
December 31, 2014 ? ? ? ?
December 31, 2015 ? ? ? ?
December 31, 2016 ? ? ? ?
Total 45,000 41,007 3,993

b. What time(s) in the table would appear on the 2014 balance sheet?

c. What time(s) in the table would appear on the 2014 income statement?

d. What time(s) in the table would appear on the 2014 statement of cash flows?

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Your tutorial is attached in excel (see separate tutorial tab, click in cells to see computations). There is a row above each column showing you what is needed to compute each amount.

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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