Novak Corp. sold $4,300,000, 4%, 10-year bonds on January 1, 2022. The bonds were dated January 1 and pay interest annually on January 1. Novak Corp. uses the straight-line method to amortize bond premium or discount. The bonds were sold at 103. Prepare a bond premium amortization schedule for the first four interest periods. Annual Interest Periods Interest to Be Paid Interest Expense to Be Recorded Premium Amortization Unamortized P

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anthougo anthougo · Answer 1 · 2021-12-03T09:00:48+01:00

The Novak Corp.'s Bond Premium Amortization Schedule is as follows:

Bond Premium Amortization Schedule:

Periods Interest to Interest Expense Premium Unamortized

Be Paid to Be Recorded Amortization Premium

1 $172,000 $159,100 $12,900 $116,100 ($129,000 - $12,900)

2 $172,000 $159,100 $12,900 $103,200 ($116,100 - $12,900)

3 $172,000 $159,100 $12,900 $90,300 ($103,200 - $12,900)

4 $172,000 $159,100 $12,900 $77,400 ($90,300 - $12,900)

Data and Calculations:

Face value of bonds = $4,300,000

Proceeds from bonds = $4,429,000 (1.03 x $4,300,000)

Premium on bonds = $129,000 ($4,429,000 - $4,300,000)

Annual amortization of bonds premium = $12,900 ($129,000/10)

Coupon interest rate = 4%

Maturity period = 10 years

Date of issue = January 1, 2022

Annual interest payment = $172,000 ($4,300,000 x 4%)

Annual interest expense = $159,100 ($172,000 - $12,900)

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