Question

Part C

A company issued the following semi-annual bonds: Face amount: $150,000 Coupon rate: 6% Yield: 4% Life: 15 years a. Compute the selling price of the bonds. b. Prepare the journal entry for the issuance of the bonds using the selling price from part (a). C. Prepare the amortization schedule for only the first two interest periods using the interest method. CASH INTEREST EXPENSE AMORTIZATION BOOK VALUE

Answer 1

Solution a:

Computation of bond price
Table values are based on:
n=	30
i=	2%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.5521	$150,000	$82,811
Interest (Annuity)	22.3965	$4,500	$100,784
Price of bonds			$183,595

Solution b:

Journal Entries
Event	Particulars	Debit	Credit
1	Cash Dr	$183,595.00
	To Bonds payable		$150,000.00
	To Premium on Bonds payable		$33,595.00
	(To record issue of bond at Premium)

Solution c:

Bond Amortization Table
Semiannual interest period	Cash interest paid	Bond Interest Expense	Premium Amortization	Carrying Value
Issue date				$183,595
1	$4,500	$3,672	$828	$182,767
2	$4,500	$3,655	$845	$181,922