Question

E9-11 On January 1, 2021, White Water issues $600,000 of 7% bonds, due in 10 years, with interest payable semiannually on June 30 and December 31 each year. Required: Assuming the market interest rate on the issue date is 8%, the bonds will issue at $559,229. 1. Complete the first three rows of an amortization schedule. 2. Record the bond issue on January 1, 2021, and the first two semiannual interest payments on June 30, 2021, and December 31, 2021.

Answer 1

Interest Amortization of Discount of Premium Carrying value Expense Bond amortization schedule :- Cash Date Payment for Interest 01-Jan-21 30-Jun-21 21,000 31-Dec-21 21,000 30-Jun-22 21,000 559,229 1,369 560,598 22,369 22,424 22,481 1,424 1,481 562,022 563,503 Interest Payment = Face value * Interest rate + (1/2) Interest Payment = (600000*7%*(1/2)) Interest Payment = $ 21,000). Interest expense - (Carry Value of Bonds)*market interest rate (1/2) Discount on bonds issue = (600000-559229) = 5 40,771/. Amortization of Discount or Premium = Interest Expense - Interest paid

Credit S Journal entries :- Date Accounts Title & Explanation 01-Jan-21 Cash Discount on Bonds Payable (600000-559229) To 7% Bonds Payable (Entry for issue of Bonds Payable) Debit S 559,229 40,771 600,000 30-Jun-21 Interest Expense 22,369 To Cash To Discount on Bonds Payable (Entry for Semi annual payment on 30th June 2021) 21,000 1,369 31-Dec-21 Interest Expense 22,424 To Cash To Discount on Bonds Payable (Entry for Semi annual payment on 31st December 2021) 21,000 1,424