Question

1. (4 points) On 01-01-15, J issued $9,000,000 of its 4%, 5-year term bonds dated 01-01-15. At the time the bonds were issued, similar bonds paid 4.125%. In conjunction with issuing the bonds, on 01-01-15, J incurred and paid $75,000 of issuance costs. The bonds pay interest every July 1 and January 1. J uses the effective-interest method to amortize any bond discount or premium. J prepares AJEs only as of every December 31. Prepare (and submit to me) a complete amortization schedule for these bonds. The schedule should look like the ones in your text. You must use an excel spreadsheet. At a minimum, the values for your “Interest Expense” and “Carrying Amount of Bonds” columns should be based on formulas – not you simply typing in an amount that you calculated by hand! Also, prepare the entries J should make on
   1. 01-01-15
   2. 07-01-15
   3. 12-31-15
   4. 01-01-16
2. (5 points) On 01-01-15, B issued $3,000,000 of 3.5%, 5-year term bonds. The bonds pay interest every July 1 and January 1. At the time B issued the bonds, similar bonds paid 3%. Upon issuing the bonds, B incurred and paid $27,000 of bond issuance costs. B uses the effective-interest method to amortize any bond discount or premium. B only prepares AJEs every December 31. Prepare the entries B should make on:
   1. 01-01-15
   2. 07-01-15
   3. 12-31-15
   4. 01-01-16

3. (10 points) On 09-01-15, O issued $8,000,000 of its 6%, 5-year callable term bonds dated 09-30-15. The bonds pay interest every September 01 and March 01. O can call in the bonds any time after 09-01-18 at 101. At the time O issued the bonds, similar bonds paid 6%. Upon issuing the bonds, O incurred and paid $74,000 of bond issuance costs. O uses the effective-interest method to amortize any bond discount or premium. O prepares AJEs only as of every December 31. On July 01, 2019, G called in $6,000,000 of the bonds at the call price of 101 plus interest. Prepare the entries O should make on:
   1. 09-01-15
   2. 12-31-15
   3. 03-01-16
   4. 09-01-16
   5. 07-01-19
   6. 09-01-19
   7. 12-31-19
   8. 03-01-20
   1. 09-01-20

Answer 1

Face Value	$                                     9,000,000.00
Coupon Rate (semiannual)	2%
Coupon Payment	$                                        180,000.00
Period = 5 x2	10
Rate = 4.125%/2	2.06%
Present Value of Bond	$8,949,637.79
Bonds issued at discount
A	B	C	D	E
Periods	Interest Payment	Interest Expense = 2.06% x prev. year carrying Amt	Discount Amortization (C - B)	Discount Account Balance E -D	Bond Carrying Amount
1/1/15				$      50,362.21	$ 8,874,637.79
7/1/15	$                                        180,000.00	$183,039.40	$3,039.40	$      47,322.81	$ 8,952,677.19
1/1/16	$                                        180,000.00	$184,648.97	$4,648.97	$      42,673.84	$ 8,957,326.16
7/1/16	$                                        180,000.00	$184,744.85	$4,744.85	$      37,928.99	$ 8,962,071.01
1/1/17	$                                        180,000.00	$184,842.71	$4,842.71	$      33,086.27	$ 8,966,913.73
7/1/17	$                                        180,000.00	$184,942.60	$4,942.60	$      28,143.68	$ 8,971,856.32
1/1/18	$                                        180,000.00	$185,044.54	$5,044.54	$      23,099.14	$ 8,976,900.86
7/1/18	$                                        180,000.00	$185,148.58	$5,148.58	$      17,950.56	$ 8,982,049.44
1/1/19	$                                        180,000.00	$185,254.77	$5,254.77	$      12,695.79	$ 8,987,304.21
7/1/19	$                                        180,000.00	$185,363.15	$5,363.15	$        7,332.64	$ 8,992,667.36
1/1/20	$                                        180,000.00	$185,473.76	$7,332.64	$             (0.00)	$ 9,000,000.00
Total			$50,362.21
Date	General Journal	Debit	Credit
1/1/15	Cash	$ 8,874,637.79
	Bonds issuance Expense	$      75,000.00
	Discount on Bonds payable	$      50,362.21
	Bonds Payable		$ 9,000,000.00
7/1/15	Bond interest expense	$183,039.40
	Discount on Bonds Payable		$3,039.40
	Cash		$    180,000.00
12/31/15	Bond interest expense	$184,648.97
	Discount on Bonds Payable		$4,648.97
	Interest Payable		$    180,000.00
1/1/16	Interest Payable	$    180,000.00
	Cash		$    180,000.00

А 7 Face Value 8 Coupon Rate (semiannual) 9 Coupon Payment 10 Period = 5 x2 11 Rate = 4.125%/2 12 Present Value of Bond 13 Bonds issued at discount 9000000 =4%/2 =B7*B8 =5.2 =4.125%/2 =PV(B11, B10,-B9,-B7) 14 15 A Interest Payment Interest Expense = 2.06% x prev. y Discount Amortization (C-B) 16 Periods 17 =A2 18 -A3 19 =A5 20 42552 21 42736 22 42917 23 43101 24 43282 25 43466 26 43647 27 43831 28 Total =B9 =B18 =B19 =B20 =B21 =B22 =B23 =B24 =B25 =B26 =F17* $B$11 =F18 $B$11 =F19 $B$11 =F20*$B$11 =F21 $B$11 =F22"$B$11 =F23 $B$11 =F24*$B$11 =F25 $B$11 =F26 $B$11 =C18-B18 =C19-B19 =C20-B20 =C21-B21 =C22-B22 =C23-B23 =C24-B24 =C25-B25 =C26-B26 =C27-B27+1858.88 =SUM(D18:D27) Discount Account Balance E-D =C33 =E17-18 =E18-D19 =E19-D20 =E20-D21 =E21-D22 =E22-D23 =E23-D24 =E24-D25 =E25-D26 =E26-D27 Bond Carrying Amount =C31 =$B$7-E18 =$B$7-E19 =$B$7-E20 =$B$7-E21 =$B$7-E22 =$B$7-E23 =$B$7-E24 =$B$7-E25 =$B$7-E26 =$B$7-E27 30 Date 31 42005 Credit General Journal Cash Bonds issuance Expense Discount on Bonds payable Bonds Payable Debit =D34-C32-C33 75000 =B7-B12 =B7 36 42186 =C18 Bond interest expense Discount on Bonds Payable Cash =D18 =B18 39 40 42369 41 =C19 Bond interest expense Discount on Bonds Payable Interest Payable =D19 =B22 42 I=D42 44 42370 45 Interest Payable Cash =C44