Otter Products Inc. was authorized to issue $1,000,000 of bonds. On January 1, 2015, Otter issued $300,000 of bonds for $272,263. Terms of the bond indenture included the following:
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Date of authorization |
Term |
Interest rate |
Interest payment dates |
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January 1, 2015 |
3 years |
12% |
Semi-annually on June 30 and December 31 |
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Required: |
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1. |
Calculate |
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a. |
The amount of interest paid every interest payment date |
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b. |
The amount of amortization to be recorded at each interest payment date (use the straight-line method). |
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2. |
Prepare an amortization table showing interest expense, and beginning and ending bond carrying amounts at the end of each period over the three years. Use the following format: |
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3. |
Calculate the actual interest rate under the straight-line method of amortization for each six-month period. Round all percentage calculations to one decimal place. Use the following format: |
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4. |
Comment on the interest rate that results in each period. |
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5. |
Prepare a partial balance sheet at December 31, 2015 and 2016 assuming the bonds will be redeemed on December 31, 2017. |
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