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Bond Payable: On 7/1/14, Sasha issued $ 2,000,000 12% bonds, maturing in 5 years with a...

Bond Payable: On 7/1/14, Sasha issued $ 2,000,000 12% bonds, maturing in 5 years with a yield of 10%, compounded semi-annually. The bonds pay interest semi-annually on June 30 and December 31 of each year. The bonds are to be accounted for under the effective interest method. Round to the nearest dollar. If possible can you do this in excel?

At what amount were the bonds issued? __________

a. Prepare a well-labeled schedule (with debits/credits shown) for the journal entries through the life of the Bond.

b. Prepare the original Journal Entry to record the issue of the Bond

c. Prepare the Journal Entry to record the 12/31/15 Interest related to the Bond

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Answer #1

Calculation of Bond Issue Price:

Face Value of Bond 2000000
Coupon Rate 12%
Semi Annual Interest Payments 120000
Bond Maturity (Years) 5
PVIFA @ 5% for 10 semiannual Years                7.7217
PV of Interest Payments (A)            9,26,608
PVIF @ 5% for 10 semi annual years 0.613913254
PV of Bond Maturity (B)          12,27,827
Bond Issue Price = (A) + (B)          21,54,435

Bond Amortisation Schedule:

Semi Annual Years Opening Value Interest Expense @ 5% Interest Payment @ 6% & Bond Repay 10th year Amortisation of Premium Closing Balance
Debit Credit Debit
31-12-2014      21,54,435              1,07,722                    1,20,000                   12,278    21,42,156
30-06-2015      21,42,156              1,07,108                    1,20,000                   12,892    21,29,264
31-12-2015      21,29,264              1,06,463                    1,20,000                   13,537    21,15,727
30-06-2016      21,15,727              1,05,786                    1,20,000                   14,214    21,01,514
31-12-2016      21,01,514              1,05,076                    1,20,000                   14,924    20,86,590
30-06-2017      20,86,590              1,04,329                    1,20,000                   15,671    20,70,919
31-12-2017      20,70,919              1,03,546                    1,20,000                   16,454    20,54,465
30-06-2018      20,54,465              1,02,723                    1,20,000                   17,277    20,37,188
31-12-2018      20,37,188              1,01,859                    1,20,000                   18,141    20,19,048
30-06-2019      20,19,048              1,00,952                  21,20,000                   19,048                   -  

Journal Entries:

Journal Entry on Issue of Bond on 01/07/2014
Debit Credit
Bank A/c          21,54,435
12% Bonds Payable          20,00,000
Premium on issue of Bond            1,54,435
Journal Entry on payment of Interest on 31st Dec 2015
Debit Credit
Interest Expense            1,06,463
Premium on issue of Bond                13,537
Bank A/c            1,20,000
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