Question

1. Pina Co. sells $543,000 of 10% bonds on March 1, 2020. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2023. The bonds yield 12%.

Prepare a bond amortization schedule using the effective-interest method for discount and premium amortization. Amortize premium or discount on interest dates and at year-end. (Round answers to 0 decimal places, e.g. 38,548.)

2. Prepare all of the relevant journal entries from the time of sale until the date indicated. (Assume that no reversing entries were made.) (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.)

3. Grouper Co. sells $360,000 of 12% bonds on June 1, 2020. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2024. The bonds yield 10%. On October 1, 2021, Grouper buys back $118,800 worth of bonds for $124,800 (includes accrued interest). Give entries through December 1, 2022.

Prepare a bond amortization schedule using the effective-interest method for discount and premium amortization. Amortize premium or discount on interest dates and at year-end. (Round answers to 0 decimal places, e.g. 38,548.)

4. Prepare all of the relevant journal entries from the time of sale until the date indicated. Give entries through December 31, 2022. (Assume that no reversing entries were made.) (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.)

Answer 1

Solution:

1)

Interest	$ 27,150 x 5.58238 (see note 1)	$ 151,562
Principal	$ 543,000 x 0.66506 (see note 2)	$ 361,128
Present value of bonds	Total	$ 512,690

Note 1:
Interest calculation = $ 543,000 x 10% x (6/12) = $ 27,150

Present value of an ordinary annuity of $1: n = 7, i = 6% (PVA of $1) = 5.58238

Note 2:

Present value of $1: n = 7, i = 6% (PV of $1) = 0.66506

Discount on bonds payable = Face value - Book value

= 543,000 - 512,690 = $ 30,310

Bond discount Amortization schedule

Date	Cash paid	Interest Expense	Bond Discount	Carrying value of bonds
Mar 1, 2020				$ 512,690
Sep 1 ,2020	$ 27,150	$ 30,761	$ 3,611	$ 516,301
Mar 1 ,2021	$ 27,150	$ 30,978	$ 3,828	$ 520,129
Sep 1 , 2021	$ 27,150	$ 31,208	$ 4,058	$ 524,187
Mar 1, 2022	$ 27,150	$ 31,451	$ 4,301	$ 528,488
Sep 1 , 2022	$ 27,150	$ 31,709	$ 4,559	$ 533,047
Mar 1, 2023	$ 27,150	$ 31,983	$ 4,833	$ 537,880
Sep 1 ,2023	$ 27,150	$ 32,273	$ 5,123	$ 543,003

2. Journal Entries:

Date	Journal	Debit	Credit
Mar 1 ,2020	Cash	512,690
	Discount on Bonds payable	30,310
	Bonds payable		543,000
Sep 1, 2020	Interest Expense	30,761
	Discount on Bonds Payable		3,611
	Cash [ 543,000 x 10 % x (6/12)]		27,150
Dec 31 ,2020	Interest Expense	20,652
	Discount on Bonds Payable (3,828 x 4/6)		2,552
	Interest Payable [ 543,000 x 10 % x (4/12)]		18,100
Mar 1, 2021	Interest Expense	10,326
	Interest Payable	18,100
	Discount on Bonds Payable (3,828 x 2/6)		1,276
	Cash [ 543,000 x 10 % x (6/12)]		27,150
Sept 1 ,2021	Interest Expense	31,208
	Discount on Bonds Payable		4,058
	Cash		27,150
Dec 31, 2021	Interest Expense	20,967
	Discount On Bonds Payable (4301 x 4/6)		2,867
	Interest Payable[ 543,000 x 10 % x (4/12)]		18,100
Mar 1 , 2022	Interest Expense	10,484
	Interest Payable	18,100
	Discount On Bonds Payable( 4,301 x 2/6)		1,433
	Cash [ 543,000 x 10 % x (6/12)]		27,150
Sept 1, 2022	Interest Expense	31,709
	Discount on Bonds Payable		4,559
	Cash		27,150
Dec 31, 2022	Interest Expense	21,322
	Discount On bonds Payable (4833 x 4/6)		3,222
	Interest Payable[ 543,000 x 10 % x (4/12)]		18,100
Mar 1 ,2023	Interest Expense	10,661
	Interest Payable	18,100
	Discount On Bonds Payable (4833 x 4/6)		1,611
	Cash [ 543,000 x 10 % x (6/12)]		27,150
Sep 1, 2023	Interest Expense	32,273
	Discount on Bonds Payable		5,123
	Cash		27,150