Question

On January 1, 2021, a company issues $750,000 of 8% bonds, due in twelve years, with...

On January 1, 2021, a company issues $750,000 of 8% bonds, due in twelve years, with interest payable semiannually on June 30 and December 31 each year. Assuming the market interest rate on the issue date is 9%, the bonds will issue at $695,641.

Required:
1. Fill in the blanks in the amortization schedule below: (Round your answers to the nearest dollar amount. Enter all amounts as positive values.)

2. Record the bond issue on January 1, 2021, and the first two semi-annual interest payments on June 30, 2021, and December 31, 2021. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field. Round your answers to the nearest dollar amount.)

Homework Answers

Answer #1
1) Use the PV function in Excel to calculate the issue price of the bonds
Face Value $                   750,000.00
Semiannual Coupon Rate = 8%/2 4%
Semiannual Coupon payment $                     30,000.00
Period 24
Rate = 9%/2 4.50%
Current Price = PV(4.5%,24,-30000,-750000) $                        695,642
Amortization Table
A B C D E
Semiannual interest Rate Interest Payment Interest Expense = 4.5% x prev. year carrying Amt Discount Amortization (C - B) Discount Account Balance E -D Bond Carrying Amount 750000-E
1/1/21 $            54,358 $             695,642
6/30/21 $                          30,000 $                    31,304 $            1,304 $            53,054 $             696,946
12/31/21 $                          30,000 $                    31,363 $            1,363 $            51,692 $             698,308
6/30/22 $                          30,000 $                    31,424 $            1,424 $            50,268 $             699,732
12/31/22 $                          30,000 $                    31,488 $            1,488 $            48,780 $             701,220
6/30/23 $                          30,000 $                    31,555 $            1,555 $            47,225 $             702,775
12/31/23 $                          30,000 $                    31,625 $            1,625 $            45,600 $             704,400
6/30/24 $                          30,000 $                    31,698 $            1,698 $            43,902 $             706,098
12/31/24 $                          30,000 $                    31,774 $            1,774 $            42,128 $             707,872
6/30/25 $                          30,000 $                    31,854 $            1,854 $            40,273 $             709,727
12/31/25 $                          30,000 $                    31,938 $            1,938 $            38,336 $             711,664
6/30/26 $                          30,000 $                    32,025 $            2,025 $            36,311 $             713,689
12/31/26 $                          30,000 $                    32,116 $            2,116 $            34,195 $             715,805
6/30/27 $                          30,000 $                    32,211 $            2,211 $            31,983 $             718,017
12/31/27 $                          30,000 $                    32,311 $            2,311 $            29,673 $             720,327
6/30/28 $                          30,000 $                    32,415 $            2,415 $            27,258 $             722,742
12/31/28 $                          30,000 $                    32,523 $            2,523 $            24,735 $             725,265
6/30/29 $                          30,000 $                    32,637 $            2,637 $            22,098 $             727,902
12/31/29 $                          30,000 $                    32,756 $            2,756 $            19,342 $             730,658
6/30/30 $                          30,000 $                    32,880 $            2,880 $            16,462 $             733,538
12/31/30 $                          30,000 $                    33,009 $            3,009 $            13,453 $             736,547
6/30/31 $                          30,000 $                    33,145 $            3,145 $            10,309 $             739,691
12/31/31 $                          30,000 $                    33,286 $            3,286 $              7,023 $             742,977
6/30/32 $                          30,000 $                    33,434 $            3,434 $              3,589 $             746,411
12/31/32 $                          30,000 $                    33,589 $            3,589 $                     0 $             750,000
2)
Accounts & Titles Debit Credit
a) on Jan1, 2021
Cash $                        695,642
Discount on Bonds Payable $                          54,358
                   Bonds Payable $                  750,000
b) on June 30, 2021
Interest Expense $                          31,304
               Discount on Bonds Payable $                      1,304
               Cash $                    30,000
c) on Dec 31, 2021
Interest Expense $                          31,363
               Discount on Bonds Payable $                      1,363
               Cash $                    30,000
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