Presented below is the partial bond discount amortization schedule for Morales Corp. Morales uses the effective interest method of amortization.
|
Semiannual |
Interest |
Bond |
|||
|
Interest |
Interest to |
Expense to |
Discount |
Unamortized |
Carrying |
|
Periods |
Be Paid |
Be Recorded |
Amortization |
Discount |
Value |
|
Issue date |
$62,311 |
$937,689 |
|||
|
1 |
$45,000 |
$46,884 |
$1,884 |
60,427 |
939,573 |
|
2 |
45,000 |
46,979 |
1,979 |
58,448 |
941,552 |
Instructions
(a) Prepare the journal entry to record the payment of interest and the discount amortization at the end of period 1.
(b) Explain why interest expense is greater than interest paid.
(c) Explain why interest expense will increase each period.