Homework Answers
Answer:
1.)
| Date | Particulars | Debit ($)` | `Credit ($) |
| Nov 1, 2019 | Cash (400000 x 102%) | 408,000 | |
| Premium on Bonds payable | 8,000 | ||
| Bonds payable | 400,000 |
2.)
Premium amortization per period = Total premium/No of interest
periods
=$8000/20
=$400
| Date | particulars | Debit ($) | Credit ($) |
| May 1, 2020 | Interest | 21,600 | |
| Premium on bonds payable | 400 | ||
| Cash (400000 x 11% x 1/2) | 22,000 | ||
| Nov 1, 2020 | Interest expense | 21,600 | |
| Premium on bonds payable | 400 | ||
| Cash (400000 x 11% x 1/2) | 22,000 |
3.)
| Date | Particulars | Debit ($) | Credit ($) |
| Feb 1, 2021 | Interest expense | 2,160 | |
| Premium on bonds payable (400 x (80000/400000)x3/6) | 40 | ||
| Interest payable (80000 x 11% x 3/12) | 2,200 |
| Total premium (8000 x (80000/400000)) | 1,600 |
| Premium to be amortized per interest period 1600/20 | 80 |
| Amount Amortized since november 1, 2019 till November 1, 2020 (80 x 2) | 160 |
Amount amortized since november 1, 2020 till febraury 1, 2021 =
$40
Unamortized premium = (1600-160-40) = $1400
Gain (loss) from redemption = carrying value - call price excluding
interest
Carrying value = face value + Unamortized premium
=$80000+1400
=81400
Call price excluding interest =80000 x 98% =78400
Gain (loss) from redemption = 81400-78400 =3000
| Date | Particulars | Debit ($) | Credit ($) |
| feb 1, 2021 | Bonds payable | 80,000 | |
| Interest payable | 2200 | ||
| Premium on bonds payable | 1400 | ||
| Gain on redemption | 3000 | ||
| Cash (78400+2200) | 80600 |
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