Question

Mechanical Autoparts Inc. issued $190,000 of 9%, 10-year bonds at a price of 88 on January 31, 2017. The market interest rate at the date of issuance was 11%, and the standard bonds pay interest 1. Prepare an effective-interest amortization table for the bonds through the first three interest payments. 2. Record Mechanical's issuance of the bonds on January 31, 2017, and payment of the first semi-annual interest amount and amortization of the bonds on July 31, 2017. Explanations are not requir Mechanical Autoparts Amortization Table Interest Payment (4.5% of Maturity Value) Interest Expense (5.5% of Preceding Bond Carrying Amount) Bond Discount Amortization (B-A) Bond Discount Account Balance (Preceding D-C) Bond Carrying Amount ($190,000 - D) Semi-annual Interest Date Jan 31, 2017 July 31, 2017 Jan 31, 2018 July 31, 2018

Answer 1

1.

Semiannual interest date	Interest Payment [4.5% *190,000]	Interest expense [Carrying value*5.5%]	Discount amortization [Expense - Payment]	Bond discount account balance	Bond carrying balance [Previous year + Discount]
Jan 31,2017			0	22800	167200
July 31,2017	8550	9196	646	22154	167846
Jan 31,2018	8550	9232	682	21472	168528
July 31,2018	8550	9269	719	20753	169247

2.

Date	Accounts	Debit	Credit
2017
Jan 31	Cash	167200
	Discount on bonds payable	22800
	Bonds Payable		190000
July 31
	Interest Expense	9196
	Discount on bonds payable		646
	Cash		8550