Prepare the journal entry to record the issuance of the bond

Prepare the journal entry to record the issuance of the bonds on January 1, 2016. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. If no entry is required, select \"No Entry\" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Prepare a bond amortization schedule up to and including January 1, 2020, using the effective interest method. (Round answers to 0 decimal places, e.g. 38,548.)

Assume that on July 1, 2019, Swifty Co. redeems half of the bonds at a cost of $1,135,200 plus accrued interest. Prepare the journal entry to record this redemption. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select \"No Entry\" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
January 1, 2016

Solution

(a)

Present value of the principal

   $2,140,000 X .35218 (PV_{10, 11%}).......................

$   753,665

Present value of the interest payments

   $256,800* X 5.88923 (PVOA_{10, 11%}).................

1,512,354

Present value (selling price of the bonds).....

$2,266,019

          *$2,140,000 X 12.0% = $256,800

Cash............................................................................ .....................................................................................

2,266,019

          Bonds Payable................................................

2,140,000

          Premium Bonds Payable..............................

126,019

(b)

Date

Cash Paid

Interest Expense

Premium Amortization

Carrying Amount of Bonds

1/1/16

$2,266,019

1/1/17

$256,800

$249,262

$7,538

2,258,481

1/1/18

256,800

248,433

8,367

2,250,114

1/1/19

256,800

247,513

9,287

2,240,827

1/1/20

256,800

246,491

10,309

2,230,517

(c)

Carrying amount as of 1/1/19..............................

$2,240,827

Less: Amortization of bond premium

            (10,309 ÷ 2)..................................................

         5,155

Carrying amount as of 7/1/19..............................

$2,235,672

Reacquisition price...............................................

$1,135,200

Carrying amount as of 7/1/19

   ($2,235,672 ÷ 2)...................................................

(1,117,836)

Loss on redemption of bonds............................ ..................................................................................

$     17,364

Entry for accrued interest

Interest Expense................................................

61,623

Premium on Bonds Payable

   ($5,132 X 1/2 X 1/2).........................................

2,577

          Cash

             ($256,800 X 1/2 X 1/2)...........................

64,200

Entry for reacquisition

Bonds Payable...................................................

1,070,000

Premium on Bonds Payable............................

47,836*

Loss on Redemption of Bonds ......................

17,364

          Cash............................................................

1,135,200

*Premium as of 7/1/19 to be written off

   ($2,235,672 – $2,140,000) X 1/2 = $47,836

The loss is reported as an ordinary loss.

(a)	Present value of the principal
	$2,140,000 X .35218 (PV10, 11%).......................		$   753,665
	Present value of the interest payments
	$256,800* X 5.88923 (PVOA10, 11%).................		1,512,354
	Present value (selling price of the bonds).....		$2,266,019