Question

NAME ACCT 1320 - Take Home HW - Bonds - PRINT AND COMPLETE!!! On January 1, 2020, Sponsler Corporation issued $5,000,000,7%, 20-year bonds. The bonds were sold to yield an effective interest rate of 5%. Interest is paid semiannually on June 30 and December 31. The company uses the effective interest method of amortization. Use the table below to prepare a bond discount amortization schedule which shows the amortization of discount for the first SIX interest payment dates. (Round to the nearest dollar.) Prepare the three required 2020 journal entries for the bond (over) Prepare the journal entry to redeem the bond for $6,200,000 on January 1, 2022.

Please show how you got your answers!

Answer 1

Answer with working notes is given below

effective interest is 5% . Since interest payment is semi annual 2.5% interest is taken

Present value of Principal is taken for 40th year

Interest payment - total 40 payments

Semi-annual interest payment is 7% on $5,000,000 for half year which is $175,000

PV Amount Principal Interest Issue Price $5,000,000 $175,000 factor 2.5% 0.372 25.103 Discounted PV $1,862,153 $4,392,986 $6,255,139 Premium $1,255,139 (Issue price - Face value) Amortization Table Interest Premium Expense Amortization at 2.5% Cash Interest Date January 1 2020 June 30 2020 December 31 2020 June 30 2021 December 31 2021 June 30 2022 December 31 2022 $175,000 $175,000 $175,000 $175,000 $175,000 $175,000 $156,378 $155,913 $155,436 $154,947 $154,445 $153,931 $18,622 $19,087 $19,564 $20,053 $20,555 $21,069 Bond Premium Carrying Balance Amount $1,255,139 $6,255,139 $1,236,517 $6,236,517 $1,217,430 $6,217,430 $1,197,866 $6,197,866 $1,177,813 $6,177,813 $1,157,258 $6,157,258 $1,136,189 $6,136,189

Interest payment of 2.5% is taken on Bond carrying amount

Journal entries Bond issue Date January 1 2020 Credit Debit $6,255,139 Account Titles and explanation Cash To Bond payable To Premium payable on bond ( Being bonds issued) $5,000,000 $1,255,139 Credit First interest payment Date Account Titles and explanation June 30 2020 Interest Expense Premium payable on bond To Cash (Being interest paid on bond) Debit $156,378 $18,622 $175,000 | Credit Second interest payment Date Account Titles and explanation December 31, 2020 Interest Expense Premium payable on bond To Cash (Being interest paid on bond) Debit $155,913 $19,087 $175,000 Credit Redemption of Bond Account Titles and explanation January 1 2022 Bond payable Premium payable on bond Loss on redemption of bond To Cash (Being redemption of Bond) Debit $5,000,000 $1,177,813 $22,187 $6,200,000

Loss on Bond is calculated = Redemption value - Carrying value of bond

Annuity factor calculation

since bond is for 20 years and interest payment is semi-annual. Total period will be 40 terms . Effective interest rate is 5%. for semi-annual it will be 2.5%

1.077 1.131 1.189 0.821 2.50% Annuity factor 1.025 0.976 1.051 0.952 0.929 1.104 0.906 0.884 1.160 0.862 0.841 1.218 1.249 0.801 1.280 0.781 1.312 0.762 1.345 0.744 1.379 0.725 1.413 0.708 1.448 0.690 1.485 0.674 1.522 0.657 1.560 0.641 1.599 0.626 1.639 0.610 1.680 0.595 1.722 0.581 1.765 0.567 0.553 0.539 1.809 1.854 1.900 1.948 1.996 2.046 2.098 2.150 2.204 2.259 0.526 0.513 0.501 0.489 0.477 0.465 0.454 0.443 0.432 0.421 0.411 0.401 0.391 0.382 0.372 25.103 2.315 2.373 2.433 2.493 2.556 2.620 2.685

A Year 0.025 1.025 =C3*1.025 =C4*1.025 =C5*1.025 =C6*1.025 =C7*1.025 =C8*1.025 =C9*1.025 =C10*1.025 =C11*1.025 =C12*1.025 =C13*1.025 =C14*1.025 =C15*1.025 =C16*1.025 =C17*1.025 =C18*1.025 =C19*1.025 =C20*1.025 =C21*1.025 =C22*1.025 =C23*1.025 =C24*1.025 Annuity factor =1/03 =1/04 =1/05 =1/C6 =1/07 =1/08 =1/09 =1/C10 =1/C11 =1/C12 =1/C13 =1/C14 -1/C15 =1/C16 =1/C17 =1/C18 =1/C19 =1/C20 =1/C21 =1/C22 =1/C23 =1/C24 =1/C25

Nm 00 OHN =C21*1.025 =C22*1.025 =C23*1.025 =C24*1.025 =C25*1.025 =C26*1.025 =C27*1.025 =C28*1.025 =C29*1.025 =C30*1.025 =C31*1.025 =C32*1.025 =C33*1.025 =C34*1.025 =C35*1.025 =C36*1.025 =C37*1.025 =C38*1.025 =C39*1.025 =C40*1.025 =C41*1.025 =1/C22 =1/C23 =1/C24 =1/C25 =1/C26 =1/C27 =1/C28 =1/C29 =1/C30 =1/C31 =1/032 =1/C33 =1/C34 =1/C35 =1/C36 =1/037 =1/C38 =1/C39 =1/040 =1/041 =1/042 =SUM(D3:D42) ON 0 aos

PV Amount Principal Interest Issue Price $5,000,000 $175,000 factor 2.5% 0.372 25.103 Discounted PV $1,862,153 $4,392,986 $6,255,139 Premium $1,255,139 (Issue price - Face value) Amortization Table Interest Premium Expense Amortization at 2.5% Cash Interest Date January 1 2020 June 30 2020 December 31 2020 June 30 2021 December 31 2021 June 30 2022 December 31 2022 $175,000 $175,000 $175,000 $175,000 $175,000 $175,000 $156,378 $155,913 $155,436 $154,947 $154,445 $153,931 $18,622 $19,087 $19,564 $20,053 $20,555 $21,069 Bond Premium Carrying Balance Amount $1,255,139 $6,255,139 $1,236,517 $6,236,517 $1,217,430 $6,217,430 $1,197,866 $6,197,866 $1,177,813 $6,177,813 $1,157,258 $6,157,258 $1,136,189 $6,136,189

Journal entries Bond issue Date January 1 2020 Credit Debit $6,255,139 Account Titles and explanation Cash To Bond payable To Premium payable on bond ( Being bonds issued) $5,000,000 $1,255,139 Credit First interest payment Date Account Titles and explanation June 30 2020 Interest Expense Premium payable on bond To Cash (Being interest paid on bond) Debit $156,378 $18,622 $175,000 | Credit Second interest payment Date Account Titles and explanation December 31, 2020 Interest Expense Premium payable on bond To Cash (Being interest paid on bond) Debit $155,913 $19,087 $175,000 Credit Redemption of Bond Account Titles and explanation January 1 2022 Bond payable Premium payable on bond Loss on redemption of bond To Cash (Being redemption of Bond) Debit $5,000,000 $1,177,813 $22,187 $6,200,000