Question

Application Problem 10-5A a, c-d (Part Level Submission) Sawada Insurance Ltd. issues bonds with a face value of $100 million that mature in 12 years. The bonds carry a 6.6 % interest rate and are sold at 109.57 to yield 5.5 %. They pay interest semi-annually (a) Your answer is correct. Calculate the proceeds on issuance of the bonds, and show the journal entry to record the issuance (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.) 1095700 Proceeds on Issuance of the Bonds Account Titles and Explanation Debit Credit Cash 1095700 1095700 Notes Payable SHOW LIST OF ACCOUNTS [LINK TO TEχτ LINK TO TEXT Attempts: 1 of 2 used (c) (d) Show the journal entries to record the first two interest payments on these bonds. Ignore year-end accruals of interest. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 125.) Account Titles and Explanation Debit Credit (To record first interest payment) (To record second interest payment)

Answer 1

Proceeds of issuance of bond (100000000*109.57%)	$        109,570,000
Less: face value	$        100,000,000
Premium on bond payable	$             9,570,000

Transaction	Accounts title and explanation	Debit	Credit
Issue of bond	Cash	$        109,570,000
	Bond payable		$          100,000,000
	Premium on bond payable		$               9,570,000
	(To record issued of bond payable at Premium.)

Transaction	Accounts title and explanation	Debit	Credit
First payment	Interest expense	$             3,013,175
	Premium on bond payable	$                286,825
	Cash		$               3,300,000
	(To record interest expense and amortization of bond premium.)
Second payment	Interest expense	$             3,005,287
	Premium on bond payable	$                294,713
	Cash		$               3,300,000
	(To record interest expense and amortization of bond premium.)

Semiannual coupon rate (6.6%/2)							3.30%
Semiannual market rate (5.5%/2)							2.75%
Interest payment (Credit Cash) = Face value of bond * Coupon rate = 100000000* 3.30% = 3300000
Interest Expense (Debit Interest Expense) = book value of Bond for previous period * 2.75%
Amortization of bond premium (Debit Bond Premium) = Interest payment - Interest Expense
Credit Balance in Bond premium = Credit Balance in Bond premium for previous period - Amortization of bond premium
Credit Balance in Bond Payable = Face value of bond
Book value of Bond = Credit Balance in Bond premium + Credit Balance in Bond Payable
Bond Premium Amortization Table
Period	Date	Interest payment (Cash paid) @ 6%	Interest Expense @ 2.75%	Amortization of bond premium	Credit Balance in Bond premium	Credit Balance in Bond Payable	Book (carrying) value of Bond
0					$                      9,570,000	$       100,000,000	$                 109,570,000
1		$        3,300,000	$               3,013,175	$              286,825	$                      9,283,175	$       100,000,000	$                 109,283,175
2		$        3,300,000	$               3,005,287	$              294,713	$                      8,988,462	$       100,000,000	$                 108,988,462