Question

Premiere Autoparts Inc. issued $140,000 of 7%, 10-year bonds at a price of 86 on January 31, 2017. The market interest rate at the date of issuance was 9%, 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 Premiere's 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.) Premiere Autoparts Amortization Table Interest Payment (3.5% of Maturity Value) Interest Expense (4.5% of Preceding Bond Carrying Amount) Bond Discount Amortization (B-A) Bond Discount Account Balance (Preceding D-C) Bond Carrying Amount ($140,000 -D) Semi-annual Interest Date Jan 31, 2017 July 31, 2017 Jan 31, 2018 July 31, 2018 2. Record Premiere's 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 Journal Entry Accounts 2017 Debit Credit Jan 31 Now, record the payment of the first semi-annual interest amount and amortization of the bonds on July 31, 2017. Journal Entry Accounts Debit Credit 2017 July 31

Answer 1

Solution 1:

Bond Amortization Schedule
Date	Interest Payment	Interest Expense	Discount Amortization	Discount Account Balance	Carrying value
31-Jan-17				$19,600	$1,20,400
31-Jul-17	$4,900	$5,418	$518	$19,082	$1,20,918
31-Jan-18	$4,900	$5,441	$541	$18,541	$1,21,459
31-Jul-18	$4,900	$5,466	$566	$17,975	$1,22,025

Solution 2:

Journal Entries
Date	Particulars	Debit	Credit
31-Jan-17	Cash A/c Dr	$1,20,400
	Discount on Bond Payable	$19,600
	To bonds payable		$1,40,000
	(Being bond issued at Discount)
Journal Entries
Date	Particulars	Debit	Credit
31-Jul-17	Interest Expense Dr	$5,418
	To Discount on bond payable		$518
	To Cash		$4,900