Question

Un January 1, 2015, Lenore. Inc issued S000.000 Son hands when the market rate was cember 31 and June 30 with the bonds maturing on Interest is payable semiannually on December 31 and June 30 with the bone December 31, 2024. The bonds are callable at 103. On Decemb ne bonds are callable at 103. On December 31, 2019, Lenore retired $450,000 of the bonds at the call price. At the time they retired the bonas, accrued interest for those bonds retired. At the time they retired the bonds, they also paid the Required: a. Prepare the journal entry to record the issuance of the bonds. b. Lenore uses the effective interest method to amortize any discount or premium. Prepare an amortization schedule for the bonds c. Prepare any required journal entries for interest payments for the first year - 2015. d. Prepare all required entries to record the retirement of the bonds on December 31, 2019, including the payment of accrued interest.

Answer 1

Answer to Parta Face Value of Bonds = $900,000 Annual Coupon Rate = 5.00% Semiannual Coupon Rate = 2.50% Semiannual Coupon = 2.50% * $900,000 Semiannual Coupon = $22,500 Time to Maturity = 10 years Semiannual Period = 20 Annual Interest Rate = 7.00% Semiannual Interest Rate = 3.50% Issue Value of Bonds = $22,500 * PVIFA(3.50%, 20) + $900,000 * PVIF(3.50%, 20) Issue Value of Bonds = $22,500 * (1 - (1/1.035)^20) / 0.035 + $900,000 / 1.035420 Issue Value of Bonds = $772,088 Credit Date Jan 1, 2015 General Journal Cash Discount on Bonds Payable Bonds Payable (To record issuance of bonds) Debit 772,088 127,912 900,000 Answer to Part b. Amortization Schedule:

Interest Expense Discount Amortized Date Interest Paid 1/1/2015 6/30/2015 12/31/2015 6/30/2016 12/31/2016 6/30/2017 12/31/2017 6/30/2018 12/31/2018 6/30/2019 12/31/2019 6/30/2020 12/31/2020 6/30/2021 12/31/2021 6/30/2022 12/31/2022 6/30/2023 12/31/2023 6/30/2024 12/31/2024 22,500 22,500 22,500 22,500 22,500 22,500 22,500 22,500 22,500 22,500 22,500 22,500 22,500 22,500 22,500 22,500 22,500 22,500 22,500 22,500 27,023 27,181 27,345 27,515 27,690 27,872 28,060 28,255 28,456 28,664 28,880 29,104 29,335 29,574 29,821 30,078 30,343 30,617 30,902 31,196 4,523 4,681 4,845 5,015 5,190 5,372 5,560 5,755 5,956 6,164 6,380 6,604 6,835 7,074 7,321 7,578 7,843 8,117 8,402 8,696 Unamortized Discount 127,912 123,389 118,708 113,862 108,847 103,657 98,285 92,725 86,970 81,014 74,850 68,470 61,866 55,031 47,958 40,636 33,058 25,215 17,098 8,696 Carrying Value 772,088 776,611 781,292 786,138 791,153 796,343 801,715 807,275 813,030 818,986 825,150 831,530 838,134 844,969 852,042 859,364 866,942 874,785 882,902 891,304 900,000

Answer to Part c. Credit Date June 30, 2015 Debit 27,023 General Journal Interest Expense Discount on Bonds Payable Cash (To record semi-annual interest payment and discount amortization) 4,523 22,500 Answer to Part d. Credit Date Dec 31, 2019 Debit 28,664 6,164 22,500 General Journal Interest Expense Discount on Bonds Payable Cash (To record semi-annual interest payment and discount amortization) Bonds Payable Loss on Retirement on Bonds Discount on Bonds Payable ($74,850 / 2) Cash ($450,000 * 1.03) (To record retirement on Bonds) Dec 31, 2019 450,000 50,925 37,425 463,500