Houston Company issued a $16,000, three-year, 4 percent bond on January 1, 2014. The bond interest is
paid each December 31. The bond was sold to yield 3 percent. (FV of $1, PV of $1, FVA of $1, and PVA
of $1) (Use the appropriate factor(s) from the tables provided.)
Required:
1. Complete a bond amortization schedule. Use the effective-interest method.
Date
Cash
Interest
Interest
Premium
Net Liability
Balance
01/01/2014
Expense Amortization
12/31/2014
12/31/2015
12/31/2016
2. What amounts will be reported on the income statement and balance sheet at the end of 2014, 2015,
and 2016 (immediately before repayment of principal).
December 31
2014
2015
2016
Interest expense
Bond liability