Question

On January 1, 2015, Piper Co. Issued ten-year bonds with a face valueof $3,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%.

Questions:

1) Calculate the issue of price of the bonds

2) Prepare all journal entries for 2016.

USE THIS EFFECTIVE INTEREST METHOD CHART, THAT CONSIST OF THE FOLLOWING HEADINGS

1- DATE

2- CASH INTEREST

3- INTEREST EXPENSE

4- PREMIUM AMORTIZED

5- UNAMORTIZED PREMIUM

6- BOOK VALUE

PLEASE GIVE CLEAR ANSWERS

Answer 1

Bond Issue Price = $936,000 + $1,720,500 = 2,656,500
Principal	$3,000,000 x 0.312 =		$936,000
Interest	$150,000 x 11.470 =		$1,720,500
Interest amount = $3,000,000 x 10% x 6/12 = $150,000
Date	Interest Paid	Interest Exp.	Prem. Amortization	Carrying Amount
01.01.2015				$2,656,500
06.30.2015	$150,000	$132,825	$17,175	$2,639,325
12.31.2015	$150,000	$131,966	$18,034	$2,621,291
06.30.2016	$150,000	$131,065	$18,935	$2,602,356
12.31.2016	$150,000	$130,118	$19,882	$2,582,474
06.30.2016	Bond Interest Exp.	$131,065
	Bonds Payable	$18,935
	Cash		$150,000
12.31.2016	Bond Interest Exp.	$130,118
	Bonds Payable	$19,882
	Cash		$150,000