Question

Blue Co. sells $462,000 of 10% bonds on March 1, 2017. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2020. The bonds yield 12%.

Prepare a bond amortization schedule using the effective-interest method for discount and premium amortization. Amortize premium or discount on interest dates and at year-end. (Round answers to 0 decimal places, e.g. 38,548.)

Prepare all of the relevant journal entries from the time of sale until the date indicated. (Assume that no reversing entries were made.) (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

Bond Discount Amortization Schedule
Date		Amount Paid	Interest Expense	Discount Amortized	Carrying Amount of Bonds
03-01-17					$                     436,211.00
09-01-17		$    23,100.00	$         26,172.66	$       3,072.66	$                     439,283.66
03-01-18		$    23,100.00	$         26,357.02	$       3,257.02	$                     442,540.68
09-01-18		$    23,100.00	$         26,552.44	$       3,452.44	$                     445,993.12
03-01-19		$    23,100.00	$         26,759.59	$       3,659.59	$                     449,652.71
09-01-19		$    23,100.00	$         26,979.16	$       3,879.16	$                     453,531.87
03-01-20		$    23,100.00	$         27,211.91	$       4,111.91	$                     457,643.78
09-01-20		$    23,100.00	$         27,458.63	$       4,358.63	$                     462,002.41	(Round off.,…Approx)
Date	Accounts title		Debit	Credit
03-01-17	Cash................................................................................ ........................................................................................		$        436,210.70
	Discount on Bonds Payable.............................................		$         25,789.30
	Bonds Payable.......................................................			$    462,000.00
Workings for discount:
MV of the bond				$    462,000.00
PV of $500,000 due in 7 half years at 6%
(462,000 *0.66506)............................................................			$        307,257.72
PV of interest payable semiannually
(23100*5.58238)...............................................................			$        128,952.98
Sale price of bonds................................................................				$ (436,210.70)
Discount on bonds payable...................................................				$   25,789.30
09-01-17	Interest Expense...........................................................	$    26,172.66
	Discount on Bonds Payable...............................		$           3,072.66
	Cash...................................................................		$         23,100.00
12/31/17	Interest Expense...................................................	$    17,571.33
	Discount on Bonds Payable
	(3,257 * 4/6)............................................		$           2,171.33
	Interest Payable (23100 * 4/6)...................		$         15,400.00
03-01-18	Interest Expense...................................................	$      8,785.67
	Interest Payable....................................................	$    15,400.00
	Discount on Bonds Payable
	(3,257 * 2/6)............................................		$           1,085.67
	Cash............................................................		$         23,100.00
09-01-18	Interest Expense...................................................	$    26,552.44
	Discount on Bonds Payable........................		$           3,452.00
	Cash............................................................		$         23,100.00
12/31/18	Interest Expense...................................................	$    17,840.00
	Discount on Bonds Payable
	(3,660 * 4/6)............................................		$           2,440.00
	Interest Payable..........................................		$         15,400.00