Question

Problem 14-05 (Part Level Submission) In each of the following independent cases, the company closes its books on December 31.

(a) Martinez Co. sells $543,000 of 10% bonds on March 1, 2020. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2023. The bonds yield 12%. Give entries through December 31, 2021. Prepare a bond amortization schedule using the effective-interest method for discount and premium amortization. Amortize premium or discount on interest dates and at year-end. (Round answers to 0 decimal places, e.g. 38,548.) Schedule of Bond Discount Amortization Effective-Interest Method Bonds Sold to Yield Date Cash Paid Interest Expense Discount Amortized Carrying Amount of Bonds 3/1/20 $ $ $ $ 9/1/20 3/1/21 9/1/21 3/1/22 9/1/22 3/1/23 9/1/23 Prepare all of the relevant journal entries from the time of sale until December 31, 2021. (Assume that no reversing entries were made.) (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit 3/1/20 3/1/209/1/2012/31/203/1/219/1/2112/31/21 3/1/209/1/2012/31/203/1/219/1/2112/31/21 3/1/21 3/1/209/1/2012/31/203/1/219/1/2112/31/21 3/1/209/1/2012/31/203/1/219/1/2112/31/21

Answer 1

Date	Account Titles and Explanation	Debit	Credit
3/1/20	Cash	$512688
	Discount on Bonds Payable	$30312
	Bonds Payable		$543000
9/1/20	Interest Expense	$30761
	Discount on Bonds Payable		$3611
	Cash		$27150
12/31/20	Interest Expense	$20652
	Discount on Bonds Payable ($3828/6*4)		$2552
	Interest Payable ($543000 * 5%/6*4)		$18100
3/1/21	Interest Expense($30978-$20652)	$10326
	Interest Payable	$18100
	Discount on Bonds Payable($3828-$2552)		$1276
	Cash		$27150
9/1/21	Interest Expense	$31208
	Discount on Bonds Payable		$4058
	Cash		$27150
12/31/21	Interest Expense	$20967
	Discount on Bonds Payable($4301*4/6)		$2867
	Interest Payable($543000 * 5%/6*4)		$18100

Maturity value of bonds payable = $543000

Present value of $543000 due in 7 periods at 6% = $361126

Present value of interest payable semiannually ($543000 * 5% * PVAF 7 period 6%) = $151562

Proceeds from sale of bonds = ($361126 + $151562) = $512688

Discount on bonds payable = ($543000 - $512688) = $30312

Date	Cash Paid	Interest Expense	Bond Discount	Carrying Value of Bonds
March 1, 20	$27150			$512688
Sep 1, 20	$27150	$30761	$3611	$516299
March 1, 21	$27150	$30978	$3828	$520127
Sep 1, 21	$27150	$31208	$4058	$524185
March 1, 22	$27150	$31451	$4301	$528486
Sep 1, 22	$27150	$31709	$4559	$533045
March 1, 23	$27150	$31983	$4833	$537878
Sep 1, 23	$27150	$32273	$5122	$543000