Homework SourseOn January 1 2016 Gates Corporation issued 100000 of 5year b
On January 1, 2016, Gates Corporation issued $100,000 of 5-year bonds due December 31, 2020, for $103,604.79 minus debt issuance costs of $3,000. The bonds carry a stated rate of interest of 13% payable annually on December 31 and were issued to yield 12%. The company uses the effective interest method of amortization to amortize any discounts or premiums and the straight-line method to amortize the debt issuance costs.
Required: Prepare the journal entries to record the issuance of the bonds, all the interest payments, premium amortizations, debt issuance cost amortizations, and the repayment of the bonds.
Solution
Step 1: Prepare Amortization Table
The amortization table is prepared as below:
______
Step 2: Prepare Journal Entries
The journal entries are prepared as below:
| Gates Corporation | ||||
| Amortization Schedule | ||||
| Effective Interest Method | ||||
| Date | Cash (A) | Interest Expense (B) | Unamortized Premium (A-B) | Book Value of Bonds |
| Jan 01, 2016 | 103,604.79 | |||
| Dec 31, 2016 | 13,000 | 12,432.57 (103,604.79*12%) | 567.43 | 103,037.36 (103,604.79 - 567.43) |
| Dec 31, 2017 | 13,000 | 12,364.48 (103,037.36*12%) | 635.52 | 102,401.85 (103,037.36 - 635.52) |
| Dec 31, 2018 | 13,000 | 12,288.22 (102,401.85*12%) | 711.78 | 101,690.07 (102,401.85 - 711.78) |
| Dec 31, 2019 | 13,000 | 12,202.81 (101,690.07*12%) | 797.19 | 100,892.88 (101,690.07 - 797.19) |
| Dec 31, 2020 | 13,000 | 12,107.13 (100,892.88*12% rounded of to .13) | 892.87 | 100,000.00 (100,892.88 - 892.87) |
