Question

Required information [The following information applies to the questions displayed below.] On January 1, 2021, Splash City issues $400,000 of 8% bonds, due in 15 years, with interest payable semiannually on June 30 and December 31 each year. The market interest rate on the issue date is 9% and the bonds issued at $367,422.

If the market interest rate drops to 6% on December 31, 2022, it will cost $471,507 to retire the bonds. Record the retirement of the bonds on December 31, 2022. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field. Round your intermediate calculations to the nearest whole dollar amount.)

Answer 1

Answer:

1.Amortization schedule
Date	Cash paid	Interest expense	Increase in Carrying value	Carrying value
01/01/2021				3,67,422
06/30/2021	16,000	16,534	534	3,67,956
12/31/2021	16,000	16,558	558	3,68,514
06/30/2022	16,000	16,583	583	3,69,097
12/31/2022	16,000	16,609	609	3,69,707
2
Date	Accounts titles and Explanation	Debit ($)	Credit ($)
Dec 31,2022	Bonds payable	4,00,000
	Loss on redemption of Bonds	1,01,800
	Discount on Bonds payable(400,000-369,707)		30,293
	Cash		4,71,507
Cash paid = Face amount × 4% Stated rate
Interest expense = Carrying value × 4.5% Market rate
Increase in carrying value = Interest expense - Cash paid