Question

In each of the following independent cases, the company closes its books on December 31. Sunland Co. sells $470.000 of 8% bonds on March 1, 2017. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2020, The bonds yield 12%. 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 0 decimal places, e.g. 38,548.) Schedule of Bond Discount Amortization Effective-Interest Method Bonds Sold to Yield Cash Paid Interest Expense Discount Amortized Carrying Amount of Bonds Date 3/1/20 911/20

Answer 1

Q1.
Issue price of bonds
Par value of bonds				470000
Semi annual interest cash (470000*8%*6/12)				18800
PVf at 6% for 7th period				0.665057
Annuity PVF at 6% for 7 periods				5.58238
Present value of maturity amount				312576.8
Present value of interest				104948.7
issue price				417526
Amort Chart:
Date	Cash Paid	Interest	Discount	Carrying value
		Expense	Amortized
01.03.17.				417526
01.09.17	18800	25051.56	6251.56	423777.6
01.03.18	18800	25426.65	6626.654	430404.2
01.09.18	18800	25824.25	7024.253	437428.5
01.03.19	18800	26245.71	7445.708	444874.2
01.09.19	18800	26692.45	7892.45	452766.6
01.03.20	18800	27166	8365.997	461132.6
01.09.20	18800	27667.36	8867.36	470000
Journal entries:
Date	Accounts title and explanations				Debit $	Credit $
01.03.17	Cash account				417526
	Discount n bonds payable				52474
	Bonds payable					470000
	(For bonds issued at discount)
01.09.17	Interest expense				25051.56
	Cash account					18800
	Discount on bonds payable					6251.56
	(for interest paid)
31.12.17	Interest expense				16951.1
	Interest payable (18800*4/6)					12533.33
	Discount on bonds payable (6626.65*4/6)					4417.77
	(for interest due)
01.03.18	Interest expense				8475.55
	Interest payable				12533.33
	Cash					18800
	Discount on bonds payable (6626.65*2/6)					2208.88
01.09.18	Interest expense				25824.25
	Cash account					18800
	Discount on bonds payable					7024.25
	(for interest paid)
31.12.18	Interest expense				17497.14
	Interest payable (18800*4/6)					12533.33
	Discount on bonds payable (7445.71*4/6)					4963.81
	(for interest due)