Team Shirts issued 10-year bonds with a face value of 100,000. ...

[mckennatimberlake]

Team Shirts issued 10-year bonds with a face value of 100,000. The bonds carry a 7 stated interest rate and pay interest once a year. They were issued when the market interest rate was 6 and sold for 107,360.
 
  Required:
  a. Complete the amortization schedule for the first two years of the bond issue using the effective interest method. Round to the nearest dollar.
 
   Beginning carrying value Cash payment Interest expense Amortization of discount Ending carrying value
  Year 1 107,360
  Year 2
 
  b. Put an X in the appropriate box to describe how each of these items will behave with each additional interest payment:
 
   Increase Decrease Remain the same
  1 Cash payment for interest
  2 Interest expense
  3 Bond carrying value
 
  c. Fill in the correct dollar amounts:
 
  At maturity, after the last interest payment has been made, the unamortized premium on the bonds will be ______________ and the carrying value of the bonds will be _______________.

Question 2

Merchandise is sold on account for 90, and the sale is subject to a retail sales tax of 6.40 . The amount that should be added to Accounts Receivable would be
 a. 6.40.
   b. 94.60.
   c. 83.60.
   d. 96.40.

[Sophiapenny]

Answer to Question 1

a.
Beginning carrying value Cash payment Interest expense Amortization of discount Ending carrying value
Year 1 107,360 7,000
100,000 x .07 6,442
107,360 x .06 558
7,000 - 6,442 106,802
107,360 - 558
Year 2 106,802
Same as Year 1 End 7,000
100,000 x .07 6,408
106,802 x .06 592
7,000 - 6,408 106,210
106,802 - 592

b.
Increase Decrease Remain the same
1 Cash payment for interest X
2 Interest expense X
3 Bond carrying value X

c. 0; 100,000

Answer to Question 2

d