Question

On June 1, 2019, Sheffield Company sold $3,300,000 in long-term bonds for $2,894,400. The bonds will mature in 10 years and have a stated interest rate of 8% and a yield rate of 10%. The bonds pay interest annually on May 31 of each year. The bonds are to be accounted for under the effective-interest method.

Construct a bond amortization table for this problem to indicate the amount of interest expense and discount amortization at each May 31. (Please round interest expense and bond discount columns to zero decimal places.) Date Credit Cash Debit Interest Expense Credit Bond Discount Carrying Amount of Bonds 6/1/19 $ 5/31/20 $ $ $ 5/31/21 5/31/22 5/31/23

Assuming that interest and discount amortization are recorded each May 31, prepare the adjusting entry to be made on December 31, 2021. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit Dec. 31 Click if you would like to Show Work for this question: Open Show Work

Answer 1

1). Amortisation schedule:

Debit Interest expense 10% Credit Cash Date 01-06-2019 31-05-2020 $ 31-05-2021 $ 31-05-2022 $ 31-05-2023 $ 2,64,000 $ 2,64,000 $ 2,64,000 $ 2,64,000 $ 2,89,440$ 2,91,984 $ 2,94,782 $ 2,97,861 $ Credit Bond Carrying amount Discount of bonds $ 28,94,400 25,440 $ 29,19,840 27,984 $ 29,47,824 30,782 $ 29,78,606 33,861 $ 30,12,467

Cash = $3,300,000 * 8% = $264,000
Interest expense = carrying amount of bond * 10%
Credit bond discount = Interest expense - Cash
Next carrying amount = Previous carrying amount + Credit bond discount.

2). Journal entry is as follows:-

Here we taken carrying value of bond as on 31/5/2021 for calculation of interest expense.

Debit 1,71,956.40 Credit $ Date Account Titles Dec 31, 2021 Interest expense ($2,947,824 * 10% * 7/12) Interest payable ($3,300,000 * 8% * 7/12) Discount of bonds payable $ $ 1,54,000.00 17,956.40