Question

Recording Bond Entries and Preparing an Amortization Schedule-Effective Interest Method, Premium Mitchell Inc. issued 120, 6%, $1,000 bonds on January 1, 2020. The bonds pay cash interest annually each December 31 and were issued to yield 5%. The bonds mature December 31, 2024, and the company uses the effective interest method to amortize bond discounts or premiums. Required a. Determine the selling price of the bonds. Round amount to the nearest whole dollar. b. Prepare an amortization schedule for the full bond term. c. Prepare journal entries on the following dates. 1. January 1, 2020, bond issuance. 2. December 31, 2020, interest payment. 3. December 31, 2021, interest payment. Bond Selling Price Amortization Schedule Journal Entries a. Selling price of bonds $ Check

Answer 1

Solution a:

Table values are based on:
n=	5
i=	5.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.78353	$120,000.00	$94,024
Interest (Annuity)	4.32948	$7,200.00	$31,172
Cash Proceed from sale of bond			$125,196

Solution b:

Bond Amortization Schedule
Date	Cash Paid	Interest Expense	Premium Amortized	Unamortized Premium	Carrying Value
1-Jan-20				$5,196	$125,196
31-Dec-20	$7,200	$6,260	$940	$4,256	$124,256
31-Dec-21	$7,200	$6,213	$987	$3,269	$123,269
31-Dec-22	$7,200	$6,163	$1,037	$2,232	$122,232
31-Dec-23	$7,200	$6,112	$1,088	$1,144	$121,144
31-Dec-24	$7,200	$6,056	$1,144	$0	$120,000

Solution c:

Journal Entries - Mitchell Inc.
Date	Particulars	Debit	Credit
1-Jan-20	Cash Dr	$125,196.00
	To Bond Payable		$120,000.00
	To Premium on Bond Payable		$5,196.00
	(To record issue of bond at premium)
31-Dec-20	Interest expense Dr	$6,260.00
	Premium on bond payable Dr	$940.00
	To Cash		$7,200.00
	(To record interest expense and premium amortization)
31-Dec-21	Interest expense Dr	$6,213.00
	Premium on bond payable Dr	$987.00
	To Cash		$7,200.00
	(To record interest expense and premium amortization)