Question

1. Vaughn Co. sells $470,000 of 8% 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%. Give entries through December 31, 2021.

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 December 31, 2021. (Assume that no reversing entries were made.) (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers 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

Answer - Part - (1) -

Schedule of Bond Discount Amortization

Effective Interest Method

8% Bonds Sold to Yield 12%

Date	Cash Paid ($)	Interest Expense ($)	Amortization of Bond Discount	Bond Discount ($)	Carrying Value of Bonds ($)
March 1, 2020	-	-	-	52473 [470000 - 417527]	417527 [Refer working note - (1)]
September 1, 2020	18800 [(470000*8%)/2]	25052 [417527*6%]	6252 [25052-18800]	46221 [52473-6252]	423779 [470000-46221]
March 1, 2021	18800 [(470000*8%)/2]	25427 [423779*6%]	6627 [25427-18800]	39594 [46221-6627]	430406 [470000-39594]
September 1, 2021	18800 [(470000*8%)/2]	25824 [430406*6%]	7024 [25824-18800]	32570 [39594-7024]	437430 [470000-32570]
March 1, 2022	18800 [(470000*8%)/2]	26246 [437430*6%]	7446 [26246-18800]	25124 [32570-7446]	444876 [470000-25124]
September 1, 2022	18800 [(470000*8%)/2]	26693 [444876*6%]	7893 [26693-18800]	17231 [25124-7893]	452769 [470000-17231]
March 1, 2023	18800 [(470000*8%)/2]	27166 [452769*6%]	8366 [27166-18800]	8865 [17231-8366]	461135 [470000-8865]
September 1, 2023	18800 [(470000*8%)/2]	27668 [461135*6%]	8868 [27668-18800]	0	470000 [461135+8865]

# Working note - (1) - Calculation of Cash Proceeds from Sale of Bonds -

	Particulars	Explanation	Present Value ($)
I.	Interest Expense of bonds	= Interest Expense * PVAF of $1(i%, n) = [($470000*8%)/2] * $1(6%, 7) = $18800 * 5.58238 = $104949.	104949
II.	Face value of bonds	= Face value * PVIF of $1(i%, n) = $470000 * $1(6%, 7) = $470000 * 0.66506 = $312578.	312578
Cash Proceeds from Sale of Bonds		I + II	417527

.

Answer - Part - (2) -

Journal of Vaughn Co.

Date	General journal	Debit ($)	Credit ($)
March 1, 2020	Cash [Refer working note - (1), part - (1)] Discount on Bonds Payable [Difference] Bonds Payable [Given in question]	417527 52473 -	- - 470000
September 1, 2020	Interest Expense [$417527*6%] Discount on Bonds Payable [Difference] Cash [($470000*8%)/2]	25052 - -	- 6252 18800
December 31, 2020	Interest Expense Interest Payable [$25427*4/6]	16951 -	- 16951
March 1, 2021	Interest Expense [$25427*2/6] Interest Payable [$25427*4/6] Discount on Bonds Payable [Difference] Cash [($470000*8%)/2]	8476 16951 - -	- - 6627 18800
September 1, 2021	Interest Expense [430406*6%] Discount on Bonds Payable [Difference] Cash [($470000*8%)/2]	25824 - -	- 7024 18800
December 31, 2021	Interest Expense Interest Payable [$26246*4/6]	17497 -	- 17497