Amortization of Discount
Stacy Company issued five-year, 10% bonds with a face value of $10,000 on January 1, 2008.
Interest is paid annually on December 31. The market rate of interest on this date is 12%, and
Stacy Company receives proceeds of $9,275 on the bond issuance.
1. Prepare a five-year table (similar to Exhibit 10-4) to amortize the discount using the effective
2. What is the total interest expense over the life of the bonds? cash interest payment? discount
3. Prepare the journal entry for the payment of interest and the amortization of discount on
December 31, 2010 (the third year), and determine the balance sheet presentation of the
bonds on that date.