Question

Your answer is partially correct. Try again. waterway Co. sells $430,000 of 12% bonds on June 1, 2017. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2021 . The bonds yield 10%. On October 1, 2018, Waterway buys back $141,900 worth of bonds for $149,900 (includes accrued interest) 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. (Round answers to o decimal places, e.g. 38,548.) Schedule of Bond Discount Amortization Effective-Interest Method Bonds Sold to Yield Carrying Cash Paid Interest Expense Discount Date Amortized Amount Bonds 457792 22890 2910 454882 451826 448617 445248 22744 3056 12/1/18 22591 3209 22431 3369 3538 3714 12/1/19 6/1/20 12/1/20 6/1/21 25 22262 22086 21900 441710 437996 25 3900 434096 21705 4095 430001 * Difference due to rounding

Answer 1

Calculate cash proceeds on issuance:
Maturity value of bonds payable = FV	$430,000
Interest Rate semiannual =Rate = 10%/2	5.00%
N = 4 years x 2	8
PMT = $430,000 x 12%/2	$25,800
Type	0
Present Value = PV(5%,8,-$25800,-430000,0)	$457,791.81
Present Value of Bonds	$457,791.81
Less: Bonds Payable	-$430,000
Premium on Bonds Payable	$27,791.81
Schedule of Bond Discount Amortization
Effective-Interest Method
12% Bonds Sold to Yield 10%
Date	Cash Paid	Interest Expense = Carrying Amount x 5%	Premiumt Amortized = Cash paid - Int. exp.	Carrying Amount of Bonds = Previous bal - Premium amortized
Jun.1 2017				$457,791.81
Dec. 1 2017	$25,800	$22,889.59	$2,910.41	$454,881.41
Jun.1 2018	$25,800	$22,744.07	$3,055.93	$451,825.48
Dec. 1 2018	$25,800	$22,591.27	$3,208.73	$448,616.75
Jun.1 2019	$25,800	$22,430.84	$3,369.16	$445,247.59
Dec. 1 2019	$25,800	$22,262.38	$3,537.62	$441,709.97
Jun.1 2020	$25,800	$22,085.50	$3,714.50	$437,995.46
Dec. 1 2020	$25,800	$21,899.77	$3,900.23	$434,095.24
Jun.1 2021	$25,800	$21,704.76	$4,095.24	$430,000
b)
Journal entries
Date	Account Titles & explanation	Debit	Credit
6/1/17	Cash	$457,791.81
	Bonds Payable		$430,000.00
	Premium on bonds payable		$27,791.81
12/1/17	Interest Expense	$22,889.59
	Premium on Bonds Payable	$2,910.41
	Cash		$25,800
12/31/17	Interest Expense (1 month)	$3,790.68
	Premium on Bonds Payable	$509.32
	Interest Payable		$4,300
06/1/18	Interest Expense (5 months)	$18,953.39
	Premium on Bonds Payable	$2,546.61
	Interest Payable	$4,300
	Cash		$25,800
10/1/18	Interest Expense = $22,591.27 x 33.33% x 4/6	$4,970.08
	Premium on Bonds Payable = $3208.73 x 33.33% x 4/6	$705.92
	Cash		$5,676
	$141900/$430000 = 33.33% bonds buyback
10/1/18	Bonds Payable	$141,900.00
	Premium on Bonds Payable	$7,202.41
	Gain on Redemption of Bonds		$4,878.41
	Cash		$144,224.00
Reacquisition price ($149,900 - ($141,900 x 12% x 4/12)		$144,224.00
Net carrying amount of bonds redeemed:
Par Value	$141,900.00
Unamortized premium (33.33% x ($27,791.81- 2910 -$3356)	$7,202.41	-$149,102.41
Gain on Redemption		-$4,878.41
12/1/18	Interest Expense	$15,136.15
	Premium on Bonds Payable	$2,149.85
	Cash		$17,286
12/31/18	Interest Expense	$2,504.78
	Premium on Bonds Payable	$376.22
	Interest Payable		$2,881
1/6/19	Interest Expense	$12,523.88
	Premium on Bonds Payable	$1,881.12
	Interest Payable	$2,881
	Cash		$17,286
1/12/19	Interest Expense	$14,915.79
	Premium on Bonds Payable	$2,370.21
	Cash		$17,286