Question

Your answer 15 partially Correct. Headland Co. sells $424,000 of 12% bonds on June 1, 2020. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2024. The bonds yield 10%. On October 1, 2021, Headland buys back $131,440 worth of bonds for $138,440 (includes accrued interest). Give entries through December 1, 2022. 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 Date Interest Expense Premium Amortized Carrying Amount of Bonds Date $ 451,404 6/1/20 12/1/20 25,440 22,570 2,870 448,534 6/1/21 25,440 22427 3,013 445,521 12/1/21 25,440 22276 3,164 442,357 6/1/22 25,440 22118 3,322 439,035 12/1/22 25,440 21952 3,488 435,547 6/1/23 25,440 21777 3,663 431,884 12/1/23 25,440 21594 3,846 428,038 6/1/24 25,440 21402 4,038 424,000

Answer 1

Credit Calculation Headland Co. Journal entries Date Account Titles and Explanation 1-Jun-20 Cash Premium on Bonds Payable Bonds Payable Debit 451,404 27,404 424,000 1-Dec-20 Interest expense Premium on Bonds Payable Cash 22,570 2,870 From table 1 From table 1 25,440 31-Dec-20 Interest expense Premium on Bonds Payable Interest Payable 3,738 502 =22,427/6*1 =3,013/6*1 4,240 1-Jun-21 Interest Payable Interest expense Premium on Bonds Payable Cash 4,240 18,689 2,511 From above entry =22,427/6*5 =3,013/6*5 25,440 4,604 654 From table 2 From table 2 1-Oct-21 Interest expense Premium on Bonds Payable Cash (To record interest expense and amortization) 5,258 131,440 6,018 1-Oct-21 Bonds Payable Premium on Bonds Payable Gain on redemption of bonds Cash (To record buyback of bonds) 4,275 133,182 =138,440-5,258 1-Dec-21 Interest expense Premium on Bonds Payable Cash 15,370 2,183 =22,276/424,000*(424,000-131,440) =3,164/424,000*(424,000-131,440) 17,554 31-Dec-21 Interest expense Premium on Bonds Payable Interest Payable 2,544 382 =22,118/424,000*(424,000-131,440)/6*1 =3,322/424,000*(424,000-131,440)/6*1 2,926 1-Jun-22 Interest Payable Interest expense Premium on Bonds Payable Cash 2,926 12,718 1,910 =22,118/424,000*(424,000-131,440)/6*5 =3,322/424,000*(424,000-131,440)/6*5 17,554 1-Dec-22 Interest expense Premium on Bonds Payable Cash 15,147 2,407 17,554

10% Headland Co. Schedule of Bond discount Amortization Effective-Interest Method Calculation Date Cash paid Interest expense Premium amortized Unamortized Premium Carrying Amt Interest expense Premium amortized Unamort Prem Carrying Amt 12% 1-Jun-20 27,404 451,404 451,404-424,000 1-Dec-20 25,440 22,570 2,870 24,534 448,534 451,404*10%*6/12 25,440-22,570 27,404-2,870 424,000+24,534 1-Jun-21 25,440 22,427 3,013 21,521 445,521 448,534*10%*6/12 25,440-22,427 24,534-3,013 424,000+21,521 1-Dec-21 25,440 22,276 3,164 18,357 442,357 445,521*10%*6/12 25,440-22,276 21,521-3,164 424,000+18,357 1-Jun-22 25,440 22,118 3,322 15,035 439,035 1-Dec-22 25,440 21,952 3,488 11,547 435,547 1-Jun-23 25,440 21,777 3,663 7,884 431,884 1-Dec-23 25,440 21,594 3,846 4,038 428,038 1-Jun-24 25,440 21,402 4,038 (0) 424,000 424,000*12%*6/12 Carrying amt*10%*6/12 Cash paid less int exp Face amt less Unamort Prem Present Value (PV) Amount Calculation PV of Interest 164,424 =25,440*(1-(1/(1+5%)^8))/5% PV of Maturity 286,980 =424,000/(1+5%)^8 Total PV 451,404 Initial Carrying Amount Maturity Value (424,000) Bond Premium 27,404 Interest rate - annual Interest rate semi annual 10% 5% A Number of years Number of periods DO Formula Present Value of Interest PVI = PMT [(1-(1/(1+r)n)) /r] PVI = Present value of interest to be paid PMT = Amount of interest payment r = Interest rate n = Number of periods over which payments are to be made Present Value of Maturity Amount PVM =FV/(1+r)^n PVI = Present value of maturity amount to be paid FV = Amount of Maturity payment r = Interest rate n = Number of periods over which payments are to be made

Interest expense 1-Oct-21 Buyback of bonds Date Cash paid 12% 1-Jun-20 1-Dec-20 7,886 1-Jun-21 7,886 1-Oct-21 5,258 Calculation Interest expense Premium amortized Unamortized Premium Carrying Amt Cash paid 10% 8,495 139,935 6,997 890 7,606 139,046 131,440*12%*6/12 6,952 934 6,671 138,111 131,440*12%*6/12 4,604 654 6,018 137,458 131,440*12%*4/12 139,935*10%*6/12 139,046*10%*6/12 138,111*10%*6/12 Present Value (PV) Amount Calculation PV of Interest 50,971 =7,886*(1-(1/(1+5%)^8))/5% PV of Maturity 88,964 =131,440/(1+5%)^8 Total PV 139,935 Initial Carrying Amount Future Value (131,440) Bond Premium 8,495