Question

Oriole Co. sells $435,000 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 8%. On October 1, 2021, Oriole buys back $130,500 worth of bonds for $136,500 (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.

Answer 1

Oriole Co. Calculation of issue price and discount using Excel's PV function: Maturity value of bonds payable $4,35,000 Proceeds from sale of bonds using Excel's PV 4.93.575 Premium on bonds payable $ 58,575 PV(4%,8,26100,435000) Schedule of Bond Premium Amortization Effective Interest Method 12% Bonds Sold to Yield 10% Date Paid Expense Premium Jun 1, 20 $4,93,575 Dec 1, 20 $ 26,100 $ 19,743 $ 6,357 4.87.218 Jun 1, 21 26.100 19,489 6,611 4.80.607 Dec 1, 21 26,100 19,224 6,876 4,73,731 Jun 1, 22 26.100 18.949 7,151 4.66.580 Dec 1, 22 26,100 18,663 7,437 4,59,143 Jun 1, 23 26.100 18.366 7,734 4.51,409 Dec 1, 23 26,100 18,056 8,044 4,43,365 Jun 1, 24 26,100 17,735 8,365 4,35,000 Credit 6-1-20 Debit 4,93,575 Cash Premium on Bonds Payable Bonds Payable 58,575 4,35,000 12-1-20 Interest Expense Premium on Bonds Payable Cash 19,743 6,357 26,100 12-31-20 Interest Expense Premium on Bonds Payable Interest Payable 3,248 1,102 4,350 6-1-21 Interest Expense Interest Payable Premium on Bonds Payable Cash 16,241 4,350 5,509 26,100 10-1-21 Interest Expense Premium on Bonds Payable Cash 3,845 1,375 5,220 Calculation of gain on redemption Net carrying amount of bonds redeemed - Par value Unamortized premium $1,30,500 12.307 1,42,807 1,31,280 $ 11,527 Reacquisition price Gain on redemption 1,30,500 12,307 10-1-21 Bonds Payable Premium on Bonds Payable Gain on Redemption of Bonds Cash 11,527 1,31,280 12-1-21 Interest Expense Premium on Bonds Payable Cash 13,457 4,813 18,270 12-31-21 Interest Expense Premium on Bonds Payable Interest Payable 2,211 834 3,045 6-1-22 Interest Expense Interest Payable Premium on Bonds Payable Cash 11,054 3,045 4,171 18.270 12-1-22 Interest Expense Premium on Bonds Payable Cash 13,064 5,206 18,270