Homework SourseOption 1 Bonds Issued at a Premium Intel Inc is the pioneer
Option #1: Bonds Issued at a Premium Intel Inc. is the pioneer in the manufacture of microprocessor for computers. On 4/1/2016, Intel issued $800,000 of 12% face value bonds for $851,705.70. The bonds are due in 4 years, and pay interest semiannually on September 30 and March 31. Intel sold the bonds to yield 10%. Use the spreadsheet found in the link at the bottom to prepare a bond interest expense and premium amortization schedule using the straight-line method. Use the attached spreadsheet to prepare a bond interest expense and premium amortization schedule using the effective interest method. Prepare any adjusting entries for the end of the fiscal year, December 31, 2016, using the: straight-line method of amortization effective interest method of amortization Assume the company retires the bonds on June 30, 2017, at 103 plus accrued interest. Prepare the journal entries to record the bond retirement using the: straight-line method of amortization effective interest method of amortization
Solution
St line method:
Bond interest expense and premium amortisation
Effective interest method:
St line method:
Adjusting entry:
Effective interest method:
Adjusting entry:
Bond retirement:
Effective interest method:
Bond retirement:
St line method:
| Date | Beginning carrying amount | Premium opening | number of months interest accrued | Interest payable opening | Cash interest accrued | Cash interest paid | Interest payable closing | Premium amortization | Interest expense accrual for the period | Closing carrying amount | Premium closing | |
| Sep | 2016 | 8,51,705.70 | 51,705.70 | 6 | - | 48,000.00 | 48,000.00 | - | 6,463.21 | 41,536.79 | 8,45,242.49 | 45,242.49 |
| Dec | 2016 | 8,45,242.49 | 45,242.49 | 3 | - | 24,000.00 | - | 24,000.00 | 3,231.61 | 20,768.39 | 8,42,010.88 | 42,010.88 |
| Mar | 2017 | 8,42,010.88 | 42,010.88 | 3 | 24,000.00 | 24,000.00 | 48,000.00 | - | 3,231.61 | 20,768.39 | 8,38,779.28 | 38,779.28 |
| Sep | 2017 | 8,38,779.28 | 38,779.28 | 6 | - | 48,000.00 | 48,000.00 | - | 6,463.21 | 41,536.79 | 8,32,316.06 | 32,316.06 |
| Dec | 2017 | 8,32,316.06 | 32,316.06 | 3 | - | 24,000.00 | - | 24,000.00 | 3,231.61 | 20,768.39 | 8,29,084.46 | 29,084.46 |
| Mar | 2018 | 8,29,084.46 | 29,084.46 | 3 | 24,000.00 | 24,000.00 | 48,000.00 | - | 3,231.61 | 20,768.39 | 8,25,852.85 | 25,852.85 |
| Sep | 2018 | 8,25,852.85 | 25,852.85 | 6 | - | 48,000.00 | 48,000.00 | - | 6,463.21 | 41,536.79 | 8,19,389.64 | 19,389.64 |
| Dec | 2018 | 8,19,389.64 | 19,389.64 | 3 | - | 24,000.00 | - | 24,000.00 | 3,231.61 | 20,768.39 | 8,16,158.03 | 16,158.03 |
| Mar | 2019 | 8,16,158.03 | 16,158.03 | 3 | 24,000.00 | 24,000.00 | 48,000.00 | - | 3,231.61 | 20,768.39 | 8,12,926.43 | 12,926.43 |
| Sep | 2019 | 8,12,926.43 | 12,926.43 | 6 | - | 48,000.00 | 48,000.00 | - | 6,463.21 | 41,536.79 | 8,06,463.21 | 6,463.21 |
| Dec | 2019 | 8,06,463.21 | 6,463.21 | 3 | - | 24,000.00 | - | 24,000.00 | 3,231.61 | 20,768.39 | 8,03,231.61 | 3,231.61 |
| Mar | 2020 | 8,03,231.61 | 3,231.61 | 3 | 24,000.00 | 24,000.00 | 48,000.00 | - | 3,231.61 | 20,768.39 | 8,00,000.00 | - |
