On September 1 19X1 Golf Company sold and issued to Youngblo

On September 1, 19X1, Golf Company sold and issued to Youngblood Company $60,000, 5-year, 9% coupon annual interest rate (payable semiannually) bonds for a price that would yield the market annual rate of interest of 8%. The bonds were dated July 1, 19X1, and interest is payable each June 30 and December 31. The accounting period for Golf ends on December 31.

Record the cash price at September 1, and the journal entries for issuance and the first 2 interest periods.

Solution

Answer 1. Table Value Based on n= 10 (5 Year X 2) i= 4.00% (8% /2) Cash Flow Amount Present Value Interest - $60,000 X 9% X 6/12                  2,700                                      21,899 ($2,700 X 8.11090) Principal          60,000.00                                      40,534 ($60,000 X 0.67556) Issue Price of Bonds                                      62,433 Premium on issue of Bonds                                        2,433 Amortization Schedule Effective Interest Method A B C D E Semi-Annual Interest Period Interest Paid - $60,000 X 9% X 6/12 Interest Expense - Preceeding Bond Carrying Value X 8% X 6/12 Premium Amortization (A - B) Unamortized Premium (D - C) Bond Carrying Amount ($60,000 + D) 7/1/20X1                            -                                      -                                      -                               2,433                      62,433 12/31/20X1                     2,700                             2,497                                203                             2,230                      62,230 6/30/20X2                     2,700                             2,489                                211                             2,020                      62,020 12/31/20X2                     2,700                             2,481                                219                             1,800                      61,800 6/30/20X3                     2,700                             2,472                                228                             1,572                      61,572 12/31/20X3                     2,700                             2,463                                237                             1,335                      61,335 6/30/20X4                     2,700                             2,453                                247                             1,089                      61,089 12/31/20X4                     2,700                             2,444                                256                                 832                      60,832 6/30/20X5                     2,700                             2,433                                267                                 565                      60,565 12/31/20X5                     2,700                             2,423                                277                                 288                      60,288 6/30/20X6                     2,700                             2,412                                288                                   (0)                      60,000 Journal Entry Date Particulars Dr. Amt. Cr. Amt 9/1/20X1 Cash            63,333 Bonds Payable            60,000 Premium on issue of Bonds              2,433 Interest Expense                  900 (record the issue of bonds) 12/31/20X1 Interest Expense              2,497    Cash              2,700    Premium on Issue of Bonds                  203 (record the interest paid) 6/30/20X2 Interest Expense              2,489    Cash              2,700    Premium on Issue of Bonds                  211 (record the interest paid)