Question

On January 1, 2018, Bradley Recreational Products issued
$200,000, 9%, four-year bonds. Interest is paid semiannually on
June 30 and December 31. The bonds were issued at $193,537 to yield
an annual return of 10%. (FV of $1, PV of $1, FVA of $1, PVA of $1,
FVAD of $1 and PVAD of $1) **(Use appropriate factor(s) from
the tables provided.)**

**
Required:
1.** Prepare an amortization schedule that determines
interest at the effective interest rate.

Answer #1

**Solution 1:**

Bond
Amortization Schedule - Bradely Recreation products - Effective
Interest method |
|||||

Period |
Cash Paid |
Interest Expense |
Discount Amortized |
Unamortized discount |
Carrying Value |

1-Jan-18 | $6,463 | $193,537 | |||

30-Jun-18 | $9,000 | $9,677 | $677 | $5,786 | $194,214 |

31-Dec-18 | $9,000 | $9,711 | $711 | $5,075 | $194,925 |

30-Jun-19 | $9,000 | $9,746 | $746 | $4,329 | $195,671 |

31-Dec-19 | $9,000 | $9,784 | $784 | $3,546 | $196,454 |

30-Jun-20 | $9,000 | $9,823 | $823 | $2,723 | $197,277 |

31-Dec-20 | $9,000 | $9,864 | $864 | $1,859 | $198,141 |

30-Jun-21 | $9,000 | $9,907 | $907 | $952 | $199,048 |

31-Dec-21 | $9,000 | $9,952 | $952 | $0 | $200,000 |

**Solution 2:**

Bond
Amortization Schedule - Bradely Recreation products - Straight line
method |
|||||

Period |
Cash Paid |
Interest Expense |
Discount Amortized |
Unamortized discount |
Carrying Value |

1-Jan-18 | $6,463 | $193,537 | |||

30-Jun-18 | $9,000 | $9,808 | $808 | $5,655 | $194,345 |

31-Dec-18 | $9,000 | $9,808 | $808 | $4,847 | $195,153 |

30-Jun-19 | $9,000 | $9,808 | $808 | $4,039 | $195,961 |

31-Dec-19 | $9,000 | $9,808 | $808 | $3,232 | $196,769 |

30-Jun-20 | $9,000 | $9,808 | $808 | $2,424 | $197,576 |

31-Dec-20 | $9,000 | $9,808 | $808 | $1,616 | $198,384 |

30-Jun-21 | $9,000 | $9,808 | $808 | $808 | $199,192 |

31-Dec-21 | $9,000 | $9,808 | $808 | $0 | $200,000 |

**Solution 3:**

Journal
Entries - Bradely Recreation products |
|||

Date |
Particulars |
Debit |
Credit |

Effective interest method: |
|||

30-Jun-20 | Interest Expense Dr | $9,823.00 | |

To Cash | $9,000.00 | ||

To Discount on bond payable | $823.00 | ||

(Being interest paid and discount amortized) | |||

Straight Line Method: |
|||

30-Jun-20 | Interest Expense Dr | $9,808.00 | |

To Cash | $9,000.00 | ||

To Discount on bond payable | $808.00 | ||

(Being interest paid and discount amortized) |

**Solution 5:**

If market rate is still 10% then price would be paid by second investor to first investor on June 30, 2020 =

Carrying value of bond on June 30, 2020 under effective interest method * Face value of bond purchase / Total face value of bond

$197,277 * $20,000 / $200,000 = $19,727.70

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