Homework SourseAmortization of bond premium and discount Legacy issues 6100
Amortization of bond premium and discount
Legacy issues $610,000 of 6.5%, four-year bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31. They are issued at $579,203 and their market rate is 8% at the issue date.
2. Determine the total bond interest expense to be recognized over the bonds\' life.
3. Prepare a straight-line amortization table for the bonds\' first two years.
4. Prepare the journal entries to record the first two interest payments.
Solution
Answers
Date
Account titles
Debit
Credit
01-Jan-17
Cash
$ 579,203.00
Discount on Bonds payable
$ 30,797.00
Bonds Payable
$ 610,000.00
(Bonds issued at discount)
Amount repaid:
8 [ 4 year bond x 2 semi annual payment each year]
payments of
$ 19,825.00 [610,000 x 6.5% x 6/12]
$ 158,600.00
Par Value at maturity
$ 610,000.00
Total Repaid
$ 768,600.00
Less: Amount borrowed
$ 579,203.00
Total Bond Interest Expense
$ 189,397.00
Semi Annual Period End
Discount amortised
Carrying Value
[$ 30,797 / 8 payments]
01-Jan-17
$ 579,203.000
30-Jun-17
$ 3,849.625
$ 583,052.625
31-Dec-17
$ 3,849.625
$ 586,902.250
30-Jun-18
$ 3,849.625
$ 590,751.875
31-Dec-18
$ 3,849.625
$ 594,601.500
Date
Account titles
Debit
Credit
30-Jun-17
Interest Expense
$ 23,674.625
Discount on Bonds payable
$ 3,849.625
Cash
$ 19,825.000
(semi annual interest paid)
Date
Account titles
Debit
Credit
31-Dec-17
Interest Expense
$ 23,674.625
Discount on Bonds payable
$ 3,849.625
Cash
$ 19,825.000
(semi annual interest paid)
---Both the entries would be same.
| Date | Account titles | Debit | Credit |
| 01-Jan-17 | Cash | $ 579,203.00 | |
| Discount on Bonds payable | $ 30,797.00 | ||
| Bonds Payable | $ 610,000.00 | ||
| (Bonds issued at discount) |
