Question

Zappits Autoparts Inc. issued $130,000 of 8%, 10-year bonds at a price of 86 on January 31, 2017. The market interest rate at the date of issuance was 11%, and the standard bonds pay interest semi-annually. 1. Prepare an effective-interest amortization table for the bonds through the first three interest payments. 2. Record Zappits' issuance of the bonds on January 31, 2017, and payment of the first semi-annual interest amount and amortization of the bonds on July 31, 2017. Explanations are not required. 1. Prepare an effective-interest amortization table for the bonds through the first three interest payments. (Round your answers to the nearest whole dollar.) Zappits Autoparts Amortization Table B Interest Payment Bond Discount Bond Discount Bond Semi-annual (4% of Interest Expense (5.5% of Preceding Bond Carrying Amount) Amortization (B-A) Account Balance (Preceding D-C) Carrying Amount ($130,000 - D) Interest Date Maturity Valu Jan 31, 2017 July 31, 2017 Jan 31, 2018 July 31, 2018 2. Record Zappits' issuance of the bonds on January 31, 2017, and payment of the first semi-annual interest amount and amortization of the bonds on July 31, 2017. (Record debits first, then credits. Explanations are not required.) Start by recording the issuance of bonds on January 31, 2017.

Answer 1

Solution 1:

Bond Amortization Schedule
Date	Interest payment	Interest Expense	Discount amortization	Discount account balance	Carrying value
31-Jan-17				$18,200	$1,11,800
31-Jul-17	$5,200	$6,149	$949	$17,251	$1,12,749
31-Jan-18	$5,200	$6,201	$1,001	$16,250	$1,13,750
31-Jul-18	$5,200	$6,256	$1,056	$15,194	$1,14,806

Solution 2:

Journal Entries
Date	Particulars	Debit	Credit
31-Jan-17	Cash A/c Dr	$1,11,800
	Discount on Bond Payable	$18,200
	To bonds payable		$1,30,000
	(Being bond issued at Discount)
Journal Entries
Date	Particulars	Debit	Credit
31-Jul-17	Interest Expense Dr	$6,149
	To Discount on bond payable		$949
	To Cash		$5,200