Question

Effective Interest Amortization
On January 1, 2018, Ranier, Inc., issued $300,000 of ten percent, 15‑year bonds for $351,876, yielding an effective interest rate of 8 percent. Semiannual interest is payable on June 30 and December 31 each year. The firm uses the effective interest method to amortize the premium.

Required
a. Prepare an amortization schedule showing the necessary information for the first two interest periods. Round amounts to the nearest dollar.
b. Prepare the journal entry for the bond issuance on January 1, 2018.
c. Prepare the journal entry to record the bond interest payment and premium amortization at June 30.
d. Prepare the journal entry to record the bond interest payment and premium amortization at December 31.

a.

Year	Interest Period	Interest Paid	Interest Expense	Periodic Amortization	Balance of Unamortized Premium	Book Value of Bonds End of Period
at issue		Answer	Answer	Answer	Answer	Answer
1	1	Answer	Answer	Answer	Answer	Answer
	2	Answer	Answer	Answer	Answer	Answer

General Journal
Date	Description	Debit	Credit
b.
Jan. 1	AnswerCashPremium on Bonds PayableBonds PayableBond Interest Expense	Answer	Answer
	AnswerCashPremium on Bonds PayableBonds PayableBond Interest Expense	Answer	Answer
	Bonds Payable	Answer	Answer
	To record bond issuance.
c.
Jun.30	Bond Interest Expense	Answer	Answer
	AnswerCashPremium on Bonds PayableBonds PayableBond Interest Expense	Answer	Answer
	AnswerCashPremium on Bonds PayableBonds PayableBond Interest Expense	Answer	Answer
	To record semiannual interest paymentandpremium amortization.
d.
Dec.31	Bond Interest Expense	Answer	Answer
	AnswerCashPremium on Bonds PayableBonds PayableBond Interest Expense	Answer	Answer
	AnswerCashPremium on Bonds PayableBonds PayableBond Interest Expense	Answer	Answer
	To record semiannual interest paymentandpremium amortization.

Answer 1

Face Value of Bonds = $300,000
Issue Value of Bonds = $351,876

Premium on Bonds = Issue Value of Bonds - Face Value of Bonds
Premium on Bonds = $351,876 - $300,000
Premium on Bonds = $51,876

Annual Coupon Rate = 10.00%
Semiannual Coupon Rate = 5.00%
Semiannual Coupon = 5.00% * $300,000
Semiannual Coupon = $15,000

Annual Interest Rate = 8.00%
Semiannual Interest Rate = 4.00%

Answer a.

Date Interest Paid Jan. 01, 2018 June 30, 2018 $ 15,000 $ Dec. 31, 2018 $ 15,000 $ Interest Premium Unamortized Book Value of Expense Amortized Premium Bonds $ 51,876 $ 351,876 14,075$ 925 $ 50,951 $ 350,951 14,038 $ 962 $ 49,989 $ 349,989

Answer b to d.

Credit Date Jan. 01, 2018 Debit 351,876 300,000 51,876 June 30, 2018 14,075 925 General Journal Cash Bonds Payable Premium on Bonds Payable (To record bond issuance) Interest Expense Premium on Bonds Payable Cash (To record semiannual interest payment and premium amortized) Interest Expense Premium on Bonds Payable Cash (To record semiannual interest payment and premium amortized) 15,000 Dec. 31, 2018 14,038 962 15,000