Question

Evermaster corporation issued $100,000 of 8% term bonds on Jan 1, 2017, due on Jan 1, 2022, with interest payable each July 1 and jan 1. The yield rate is 10%. Assume a Dec 31 year-end.

a. Prepare an amortization schedule using the effective interest method.

b. Prepare the journal entry on Jan 1, 2022.

Answer 1

Solution a:

Computation of bond price
Table values are based on:
n=	10
i=	5.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.61391	$100,000.00	$61,391
Interest (Annuity)	7.72173	$4,000.00	$30,887
Price of bonds			$92,278

Bond Amortization Schedule - Effective interest method
Date	Cash Paid	Interest Expense	Discount Amortized	Unamortized Discount	Carrying Value
1-Jan-17				$7,722	$92,278
1-Jul-17	$4,000	$4,614	$614	$7,108	$92,892
1-Jan-18	$4,000	$4,645	$645	$6,464	$93,536
1-Jul-18	$4,000	$4,677	$677	$5,787	$94,213
1-Jan-19	$4,000	$4,711	$711	$5,076	$94,924
1-Jul-19	$4,000	$4,746	$746	$4,330	$95,670
1-Jan-20	$4,000	$4,784	$784	$3,546	$96,454
1-Jul-20	$4,000	$4,823	$823	$2,724	$97,276
1-Jan-21	$4,000	$4,864	$864	$1,860	$98,140
1-Jul-21	$4,000	$4,907	$907	$953	$99,047
1-Jan-22	$4,000	$4,952	$952	$0	$100,000

Solution b:

Journal Entries - Evermaster corporation
Date	Particulars	Debit	Credit
1-Jan-22	Bond Payable Dr	$100,000.00
	Interest payable Dr	$4,000.00
	To Cash		$104,000.00
	(To record payment of interest and principal at maturity)