Question

Metlock Co. sells $431,000 of 12% bonds on June 1, 2017. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2021. The bonds yield 8%. On October 1, 2018, Metlock buys back $137,920 worth of bonds for $144,920 (includes accrued interest).

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.

Date .       Cash Paid .         Interest Expense          Discount Amortized .        Carrying Amount of Bonds
3/1/17        $                        $                                    $                                       $

9/1/17        

3/1/18        

9/1/18        

3/1/19        

9/1/19        

3/1/20        

9/1/20        

Prepare all of the relevant journal entries from the time of sale until the date indicated. Give entries through December 1, 2019. (Assume that no reversing entries were made.)

6/1/17

12/1/17/

12/31/17

6/1/18

10/1/18

(to record interest expense and premium amortization)

10/1/18

(to record buy back of bonds)

12/1/18

12/31/18

6/1/19

12/1/19

Answer 1

Date	Cash Paid	Interest Expense	Bond Premium	Carrying Value of Bonds
01-06-14				$                        489,036
01-12-14	$     25,860	$             19,561	$            6,299	$                        482,738
01-06-15	$     25,860	$             19,310	$            6,550	$                        476,187
01-12-15	$     25,860	$             19,047	$            6,813	$                        469,375
01-06-16	$     25,860	$             18,775	$            7,085	$                        462,290
01-12-16	$     25,860	$             18,492	$            7,368	$                        454,921
01-06-17	$     25,860	$             18,197	$            7,663	$                        447,258
01-12-17	$     25,860	$             17,890	$            7,970	$                        439,288
01-06-18	$     25,860	$             17,572	$            8,288	$                        431,000

01-06-14	Cash	$489,036.26
	Bonds Payable		$431,000.00
	Premium on Bonds Payable		$ 58,036.26
	Maturity value of bonds payable	$431,000.00
	Present value of $215,500 due in 7 periods at 8%	$314,927.48
	Present value of interest payable semiannually	$174,108.78
	Proceeds from sale of bonds	$489,036.26
	Premium on bonds payable	$ 58,036.26
01-12-14	Interest Expense	$ 19,561.45
	Premium on Bonds Payable	$    6,298.55
	Cash [$431,000 × 12.00% × (6/12 mos)]		$ 25,860.00
	Note: Amortization table is semi-annual, interest rate is stated as annual value.
31-12-14	Interest Expense [$19,310 × (1/6 mos)]	$    3,218.25
	Premium on Bonds Payable [$6,550 × (1/6 mos)]	$    1,091.75
	Interest Payable [$431,000 × 12.00% × (4/12 mos)]		$    4,310.00
01-06-15	Interest Expense [$19,310 × (5/6 mos)]	$ 16,091.26
	Interest Payable [$431,000 × 12.00% × (4/12 mos)]	$    4,310.00
	Premium on Bonds Payable [$6,550 × (5/6 mos)]	$    5,458.74
	Cash [$431,000 × 12% × (5/12 mos)]		$ 25,860.00
01-10-15	Interest Expense [$19,047 × 0.32 × (4/6 mos)]	$    4,063.46
	Premium on Bonds Payable [$6,813 × 0.32 × (4/6 mos)]	$    1,453.34
	Cash [$431,000 × 0.32 × 12% × (4/12 mos)]		$    5,516.80
01-10-15	Bonds Payable	$137,920.00
	Premium on Bonds Payable [$45,187 × 0.32 - $1,453)	$ 13,006.57
	Gain on Redemption of Bonds Payable		$ 11,523.37
	Cash [$431,000 × 0.32 × 12% × (4/12 mos)]		$139,403.20
	Net carrying amount of bonds redeemed - Par value	$137,920.00
	Unamortized premium	$ 13,006.57
		$150,926.57
	Reacquisition price	$139,403.20
	Gain on redemption	$ 11,523.37
01-12-15	Interest Expense ($19,047 × 0.68)	$ 12,952.29
	Premium on Bonds Payable ($6,813 × 0.68)	$    4,632.51
	Cash [$293,080 × 12.00% × (6/12 mos)]		$ 17,584.80
31-12-15	Interest Expense [$18,775 × 0.68 × (1/6 mos)]	$    2,127.83
	Premium on Bonds Payable [$7,085 × 0.68 × (1/6 mos)]	$      802.97
	Interest Payable [$293,080 × 12.00% × (1/12 mos)]		$    2,930.80
01-06-16	Interest Expense [$18,775 × 0.68 × (5/6 mos)]	$ 10,639.16
	Interest Payable [$293,080 × 12.00% × (1/12 mos)]	$    2,930.80
	Premium on Bonds Payable [$7,085 × 0.68 × (5/6 mos)]	$    4,014.84
	Cash [$293,080 × 12.00% × (6/12 mos)]		$ 17,584.80
01-12-16	Interest Expense ($18,492 × 0.68)	$ 12,574.28
	Premium on Bonds Payable ($7,368 × 0.68)	$    5,010.52
	Cash [$293,080 × 12.00% × (6/12 mos)]		$ 17,584.80