Question

The Gorman Group issued $900,000 of 13% bonds on June 30, 2021, for $967,707. The bonds were dated on June 30 and mature on June 30, 2041 (20 years). The market yield for bonds of similar risk and maturity is 12%. Interest is paid semiannually on December 31 and June 30. Required: Complete the below table to record the company's journal entry. 1. to 3. Prepare the journal entries to record their issuance by The Gorman Group on June 30, 2021, interest on December 31, 2021 and interest on June 30, 2022 (at the effective rate). Complete this question by entering your answers in the tabs below. Calculation Req 1 to 3 Complete the below table to record the company's journal entry. (Round intermediate calculations and final answers to the nearest whole dollar. Enter interest rate to 1 decimal place. (i.e. 0.123 should be entered as 12.3)). Total December 31, 2021 Amount Interest Rate Interest expense Cash Amortization of premium on bonds Total June 30, 2022 Amount Interest Rate Interest expense Cash Amortization of premium on bonds

Answer 1

Please find below table useful to compute desired results: -

E F G A B C D 1 Face value 900000 2 Interest Rate =13/100 3 Issued Price 967707 4 Maturity Period 20 5 Market Yield =12/100 6 Dec. 31, 2021 Amount Interest Rate 7 Interest Expense =B3 x =B5/2 8 Cash =B1 * =B2/2 9 Amortization of premium on bonds 10 Jun. 30,2022 Amount Interest Rate 11 Interest Expense =B3-F9 x =B5/2 12 Cash =B1 x |=B2/2 13 Amortization of premium on bonds Total =B7*D7 =B8*D8 =F8-F7 Total =B11*011 = =B12*D12 =F12-F11 | H KL No. Date Account Titles and Explanation Debit Credit Jun. 30, 2021 Cash =B3 Bonds Payable =B1 Premium on bonds payable =K2-L3 (to record the issuance of the bonds) Dec. 31, 2021 Interest Expense =F7 Premium on bonds payable =F9 Cash =F8 (to record the interest on Dec.31) 3 Jun. 30, 2022 Interest Expense =F11 Premium on bonds payable =F13 Cash =F12 (to record the interest on June 30)

End results would be as follows: -

E F G Credit Cash 900,000 67,707 А B C D 1 Face value 900,000 2 Interest Rate 13.0% 3 Issued Price 967,707 4 Maturity Period 20 5 Market Yield 12.0% 6 Dec. 31, 2021 Amount Interest Rate 7 Interest Expense 967,707 x 6.0% 8 Cash 900,000 X 6.5% 9 Amortization of premium on bonds 10 Jun. 30,2022 Amount Interest Rate 11 Interest Expense | 967,269 x 6.0% 12 Cash 900,000 X 6.5% 13 Amortization of premium on bonds H I к No. Date Account Titles and Explanation | Debit 1 Jun. 30, 2021 967,707 Bonds Payable Premium on bonds payable (to record the issuance of the bonds) 2 Dec 31, 2021 | Interest Expense 58,062 Premium on bonds payable 438 Cash (to record the interest on Dec.31) 3 Jun. 30, 2022 Interest Expense 58,036 Premium on bonds payable 464 Cash (to record the interest on June 30) Total = | 58,062 | = 58,500 438 Total = 58,036 = 58,500 464 58,500 58,500