Homework Answers
a.
| Date | General Journal | Debit | Credit |
| $ | $ | ||
| Jan 1, 2020 | Bonds Receivable | 500,000 | |
| Premium on Bonds Receivable | 37,907.40 | ||
| Cash | 537,907.40 |
b. Bond Amortization Schedule:
| Date | Amount Received | Interest Revenue | Bond Premium Amortized | Carrying Value of Bonds Receivable |
| Jan 1, 2020 | $ 537,907.40 | |||
| Dec 31, 2020 | $ 60,000 | $ 53,790.74 | $ 6,209.26 | 531,698.14 |
| Dec 31, 2021 | 60,000 | 53,169.81 | 6,830.19 | 524,867.95 |
| Dec 31, 2022 | 60,000 | 52,486.80 | 7,513.20 | 517,354.75 |
| Dec 31, 2023 | 60,000 | 51,735.48 | 8,264.52 | 509,090.23 |
| Dec 31, 2024 | 60,000 | 50,909.77 | 9,090.23 | 500,000 |
| $ 262,092.60 |
c.
| Date | General Journal | Debit | Credit |
| $ | $ | ||
| Dec 31, 2020 | Cash | 60,000 | |
| Premium on Bonds Receivable | 6,209.26 | ||
| Interest Revenue | 53,790.74 |
d.
| Date | General Journal | Debit | Credit |
| $ | $ | ||
| Dec 31, 2021 | Cash | 60,000 | |
| Premium on Bonds Receivable | 6,830.19 | ||
| Interest Revenue | 53,169.81 |
e.
| Date | General Journal | Debit | Credit |
| $ | $ | ||
| Jan 1, 2025 | Cash | 500,000 | |
| Bonds Receivable | 500,000 |
f.
| Date | General Journal | Debit | Credit |
| $ | $ | ||
| December 31 | Cash | 60,000 | |
| Premium on Bonds Receivable | 7,581.48 | ||
| Interest Revenue | 52,418.52 |
g. Total interest income under the effective interest method = $ 262,092.60
Total interest income under the straight-line method = $ 262,092.60
h. The effective interest rate reflects the current market interest rate. Hence it is more relevant to the user of the financial statements.
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