Question

# Ellis issues \$250,000, 6.5%, 5-year bonds dated January 1, 2017. The bonds pay interest semi-annually on...

Ellis issues \$250,000, 6.5%, 5-year bonds dated January 1, 2017. The bonds pay interest semi-annually on June 30 and December 31. The bonds were issued at \$255,333.

1. Record the journal entry to issue the bonds on January 1, 2017.

2. a. Record the journal entry to pay the semi-annual interest payment and amortize the premium on June 30, 2017.

b. Record the journal entry to pay the semi-annual interest payment and amortize the premium on Dec. 31, 2017.

3. a. Record the journal entry to pay the semi-annual interest payment and amortize the premium on June 30, 2018.

b. Record the journal entry to pay the semi-annual interest payment and amortize the premium on Dec. 31, 2018.

4. On September 1, 2020, Ellis calls the bonds at 99. Record the journal entry to call the bonds.

5. What is the total interest expense for the bonds for:

a. One full year?

b. The entire five year life of the bond? (if the bond had been held until maturity)

6. What is the carrying value of the bonds on:

a. December 31, 2017?

b. December 31, 2018?

I understand questions 1-3, but i do not understand questions 4-6.

First of all Market interest rate should be 6% in this ques. Since you've understood the questions 1-3 that's why i'm just answering questions 4-6.

4. On 1 September 2020

Bonds Payable (Debit) \$ 250000

Premium on Bonds payable (Debit) \$1770

Gain on Retirement of debt (Credit) \$ 4270

Cash (Credit) \$ 247500

5. A) & B) Total interest expenses :

Year Interest Payment (\$) Interest Expense (\$)
2017
 16250
 15306
2018
 16250
 15249
2019
 16250
 15188
2020
 16250
 15123
2021
 16250
 15054
Total
 81250
 75919

6. A) & B) Carrying Value of the bonds as on:

31 December 2017 = \$ 254389

31 December 2018 = \$ 253388

Thank you

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