Question

On June 30, 2020, Ivanhoe Limited issued $5 million of 20-year, 15% bonds for $5,707,274, which provides a yield of 13%. The company uses the effective interest method to amortize any bond premium or discount. The bonds pay semi-annual interest on June 30 and December 31.

repare the journal entries to record the following transactions: (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

1.		The issuance of the bonds on June 30, 2020
2.		The payment of interest and the amortization of the premium on December 31, 2020
3.		The payment of interest and the amortization of the premium on June 30, 2021
4.		The payment of interest and the amortization of the premium on December 31, 2021 What amount of interest expense is reported for 2020? Interest expense to be reported________________ What is the total cost of borrowing over the life of the bond? (Round answer to 0 decimal places, e.g. 5,275.) Total cost of borrowing over the life of the bond $________________

Answer 1

solution: No. Date 1. June 30, 2020 Bebit ($) Credit(a) $5,707,274 $ 707,274 $5,000,000 Journal Entries Account Titles and Explanation cash Premium on Bonas payable Bonds payable (to.record issuerice of bonas on June 30, 2020) Interest Expense premium on Bonds payable cash : (to record interest expense) 2. Dec 31, - 2020 $ 370,973 $ 4,027 $$375,000 3. June 30, 2021 Interest Expense ... $ 370, 711 premium on Bonas payable $ 4,289 sash (to record Interest Expense) $ 375,000

$375,000 hi Dec 31, Interest Expense $370,432 2021 .. premium on Bonds Payable $ 4,568 - Cash . .. [to record Interest Expensej Explanation for Journal Entries": (2). Interest Expense = $5,707,270 x 13%86/12 2. $370,973 casti = $5,000,000 +15%*6112 2 $375,000 . (3) Interest Expense =($5.707,276-$4,027)* 13%. 76/12 : .:: $370, 711 . (4) Interest Expense = ($5,707,274-$4,027-$4,289) + 132.466 =$370,432

Interest Expense reported for 2020'. : $370,711 Interest Expense for the period . - Jan 1. to June 30, 2020 Interest Expense for the period - June 1 to Dec 31, 2020. $370,432 $741, 143 . Amount of Bond Interest Expense ..reported for 2020 : Total cost of Borrowing over the life of Bona" Total Interest to be paid for the bond $15,000,000 ($5,000,000 4 151. *20) Ada principle due in year 2037. . . $5,000,000 :. Total cash outlay for the Bond $20,000,000 Less. cash received at issuence of Bonds $15.707,274) Total cost of the Borrowing over . . $14,292, 126 the life of Bonde

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