Preparing a Bond Amortization Schedule

Bond amortization schedule is a table showing periodic interest expense, interest payment and amortization of discount or premium.

Effective rate method of bond amortization

Following are the steps in preparing a bond amortization schedule prepared under effective rate method of bond amortization:

  1. Find the opening carrying amount of the bond payable by discounting the bond's cash flows at the market interest rate (also known as the effective rate of interest);
  2. Calculate interest payment for the period by multiplying the par value of the bond with the stated interest rate for the period.
  3. Calculate interest expense for the period by multiplying the opening carrying amount with the effective rate of interest for the period;
  4. Find the amortization of discount or premium for the period as the difference between the interest expense and the interest payment.
  5. Find the closing carrying amount of the bond payable. In case of amortization of discount, add the amortization for the period to the opening carrying amount of the bond. In case of amortization of premium, subtract the amortization for the period from the opening carrying amount of the bond.

Straight-line method of bond amortization

Following are the steps in preparing a bond amortization schedule prepared under straight-line method of bond amortization:

  1. Find the opening carrying amount of the bond payable (the same as in effective rate of interest method;
  2. Find the amortization of discount or premium for the period by dividing the total discount or premium by the number of periods.
  3. Calculate interest payment for the period by multiplying the par value of the bond with the stated interest rate for the period.
  4. Calculate interest expense for the period. In case of amortization of discount, find the interest expense for the period by adding the amortization to the interest payment. In case of amortization of premium, find the interest expense for the period by subtracting the amortization from the interest payment for the period.;
  5. Find the closing carrying amount of the bond payable (in the same way as in effective rate of amortization method).

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