Question

February 1, 2017 Sold $300,000 10-year 10% bond at a yield of 8%. Interest is paid...

February 1, 2017 Sold $300,000 10-year 10% bond at a yield of 8%. Interest is paid semiannually on January 1 and July 1. Make necessary entries for the sale of the bond as well as the interest payments for the years 2017 through 2019. Use straight line method of amortization.

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Answer #1
Table Value Based on
n=              20.00 (10 years X 2)
i=                 4.00 (8% / 2)
Cash Flow Amount Present Value
Interest - $300,000 X 10% X 6/12      15,000.00                              203,855
($15,000 X 13.59033)
Principal    300,000.00                              136,917
($300,000 X 0.45639)
Issue Price of Bond 1                              340,772
Premium on issue of Bond                                40,772
Amortization Schedule
Straight Line Method
A B C D E
Semi-Annual Interest Period Interest Payment - $300,000 X 10% X 6/12 Interest Expense -      B = A + C Premium Amortization Unamortized Premium (D - C) Bond Carrying Amount ($300,000 + D)
02/01/17                                  -                                          -                              -            40,772.00            340,772.00
07/01/17                   15,000.00                        12,961.40               2,038.60          38,733.40            338,733.40
01/01/18                   15,000.00                        12,961.40               2,038.60          36,694.80            336,694.80
07/01/18                   15,000.00                        12,961.40               2,038.60          34,656.20            334,656.20
01/01/19                   15,000.00                        12,961.40               2,038.60          32,617.60            332,617.60
07/01/19                   15,000.00                        12,961.40               2,038.60          30,579.00            330,579.00
01/01/20                   15,000.00                        12,961.40               2,038.60          28,540.40            328,540.40
Journal Entry
Date Particualrs Dr. Amt Cr. Amt
Amortization of Discount - Effective Interest Method
02/01/17 Cash         343,272.00
Bonds Payable           300,000.00
Premium on Issue f Bonds             40,772.00
   Interest Payable               2,500.00
(Record the interest paybable)
07/01/17 Interest Exp.                                                          10,461.40
Premium on Issue f Bonds              2,038.60
Interest Payable              2,500.00
    Cash             15,000.00
(Record the interest paid)
12/31/17 Interest Exp.                                                          12,961.40
Premium on Issue f Bonds              2,038.60
   Interest Payable             15,000.00
(Record the interest due)
01/01/18 Interest Payable           15,000.00
   Cash             15,000.00
(Record the interest paid)
07/01/18 Interest Exp.                                                          12,961.40
Premium on Issue f Bonds              2,038.60
   Cash             15,000.00
(Record the interest paid)
12/31/18 Interest Exp.                                                          12,961.40
Premium on Issue f Bonds              2,038.60
   Interest Payable             15,000.00
(Record the interest due)
01/01/19 Interest Payable           15,000.00
   Cash             15,000.00
(Record the interest paid)
07/01/19 Interest Exp.                                                          12,961.40
Premium on Issue f Bonds              2,038.60
   Cash             15,000.00
(Record the interest paid)
12/31/19 Interest Exp.                                                          12,961.40
Premium on Issue f Bonds              2,038.60
   Interest Payable             15,000.00
(Record the interest due)
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