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Sunland Ltd. sold $6,440,000 of 12% bonds, which were dated March 1, 2017, on June 1,...

Sunland Ltd. sold $6,440,000 of 12% bonds, which were dated March 1, 2017, on June 1, 2017. The bonds paid interest on September 1 and March 1 of each year. The bonds' maturity date was March 1, 2027, and the bonds were issued to yield 14%. Sunland's fiscal year-end was February 28, and the company followed IFRS. On June 1, 2018, Sunland bought back $2,440,000 worth of bonds for $2,340,000 plus accrued interest.

Prepare the entry for the issuance of the bonds.

Prepare the journal entry for the scheduled interest payment on September 1, 2017.

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Answer #1
Calculate cash proceeds on issuance:
Maturity value of bonds payable = FV $6,440,000
Interest Rate semiannual =Rate = 14%/2 7.00%
N = 10 years x 2 20
PMT = $6,440,000 x 12%/2 $386,400
Type 0
Present Value = PV(7%,20,-$386400,-6440000,0) $5,757,745.48
Bonds Payable $6,440,000
Less:Present Value of Bonds $5,757,745.48
Discount on Bonds Payable $682,254.52
Schedule of Bond Discount Amortization
Effective-Interest Method
12% Bonds Sold to Yield 14%
Date Cash Paid Interest Expense = Carrying Amount x 7% Discount Amortized = Int. exp - Cash paid Carrying Amount of Bonds = Previous bal + Discount amortized
Mar.1, 2017 $5,757,745.48
Sep.1 2017 $386,400 $403,042.18 $16,642.18 $5,774,387.67
Mar. 1 2018 $386,400 $404,207.14 $17,807.14 $5,792,194.8
Sep.1 2018 $386,400 $405,453.64 $19,053.64 $5,811,248.44
Mar. 1 2019 $386,400 $406,787.39 $20,387.39 $5,831,635.83
Sep.1 2019 $386,400 $408,214.51 $21,814.51 $5,853,450.34
Mar. 1 2020 $386,400 $409,741.52 $23,341.52 $5,876,791.86
Sep.1 2020 $386,400 $411,375.43 $24,975.43 $5,901,767.29
Mar. 1 2021 $386,400 $413,123.71 $26,723.71 $5,928,491
Sep.1 2021 $386,400 $414,994.37 $28,594.37 $5,957,085.37
Mar. 1 2022 $386,400 $416,995.98 $30,595.98 $5,987,681.35
Sep.1 2022 $386,400 $419,137.69 $32,737.69 $6,020,419.04
Mar. 1 2023 $386,400 $421,429.33 $35,029.33 $6,055,448.38
Sep.1 2023 $386,400 $423,881.39 $37,481.39 $6,092,929.76
Mar. 1 2024 $386,400 $426,505.08 $40,105.08 $6,133,034.85
Sep.1 2024 $386,400 $429,312.44 $42,912.44 $6,175,947.29
Mar. 1 2025 $386,400 $432,316.31 $45,916.31 $6,221,863.6
Sep.1 2025 $386,400 $435,530.45 $49,130.45 $6,270,994.05
Mar. 1 2026 $386,400 $438,969.58 $52,569.58 $6,323,563.63
Sep.1 2026 $386,400 $442,649.45 $56,249.45 $6,379,813.08
Mar. 1 2027 $386,400 $446,586.92 $60,186.92 $6,440,000
Journal entries
Date Account Titles & explanation Debit Credit
3/1/17 Cash $5,757,745.48
Discount on Bonds Payable $682,254.52
Bonds Payable $6,440,000.00
09/1/17 Interest Expense $403,042.18
Discount on Bonds Payable $16,642.18
Cash $386,400
12/31/17 Interest Expense (4 months) $269,471.42
Discount on Bonds Payable $11,871.42
Interest Payable $257,600
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