Question

Mitchell Inc. issued 42, 6%, $1,000 bonds on January 1, 2020. The bonds pay cash interest semiannually each June 30, and 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. June 30, 2020, interest payment. 3. December 31, 2020, interest payment.

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and calculation. For detailed answer refer to the supporting sheet.

Answer Parta) Since the market yield is less than the coupon rate, it means the bonds has been issued at premium Issue Price / selling price of the bond = ((semiannual interest payment)* ((1-(1.025)^-10/.025))+ (face value /(1.025)^10) = ((42*1000*6%/2)*8.752064)+(42000*.781198) = $ 43838 Thus the selling price of the bonds = $ 43838 2 Part b) rt i Date Schedule of Bond Premium amortization Effective Interest Method Cash Interest Expense Premium amortised (cash Carrying Amount Paid (carrying value *2.5% paid interest expense) of Bonds 43838 1260 1096 164 43674 1260 1092 43506 1260 1088 172 43334 1260 1083 43157 1260 1079 42976 1260 1074 186 42790 1260 10701 190 42600 1260 1065 195 42405 1260 1060 200 42205 1260 1055 205 42000 - January 1 2020. 3 June 30.2020 December 31,2020 June 30.2021 1 December 31,2021 2 June 30.2022 3 December 31,2022 June 30.2023 5 December 31,2023 5 June 30.2024 - December 31, 2024 111