Question

* Problem 14-5 (Part Level Submission) In each of the following independent cases, the company closes its books on December 31. *(a) Riverbed Co. sells $492,000 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 O decimal places, e.g. 38,548.) Schedule of Bond Discount Amortization Effective-Interest Method Bonds Sold to Yield Cash Paid Date Carrying Amount of Bonds Interest Expense Amortized 3/1/17 9/1/17 3/1/18 9/1/18 3/1/19 9/1/19 3/1/20 9/1/20 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 o for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Debit Credit Date Account Titles and Explanation 3/1/17

Answer 1

Price of the bond is calculated as shown below:

	Particulars	Cash flow	Discount factor	Discounted cash flow
	present value Interest payments-Annuity (6%,7 periods)	24,600.0	5.58238	137,326.55
	Present value of bond face amount -Present value (6%,7 periods)	492,000	0.66506	327,209.52
A	Bond price			464,536.07
	Face value			492,000.00
	Premium/(Discount)			-27,463.93
	Interest amount:
	Face value	492,000
	Coupon/stated Rate of interest	10.000%
	Frequency of payment(once in)	6 months
B	Interest amount	492000*0.1*6/12=		24600
	Present value calculation:
	yield to maturity/Effective rate	12.00%
	Effective interest per period(i)	0.12*6/12=		6.000%
	Number of periods:
Ref	Particulars	Amount
a	Number of interest payments in a year	2
b	Years to maturiy	3.5
c=a*b	Number of periods	7

Below is the amortization schedule:

Date	Cash paid	Interest expense	Discount amortized	Carrying amount
	a	b= carrying amount x 12%/2	d = b - c	Beginning balance + d
3/1/2017				$      464,536
9/1/2017	$     24,600	$      27,872.16	$        3,272	$      467,808
3/1/2018	$     24,600	$            28,068	$        3,468	$      471,277
9/1/2018	$     24,600	$            28,277	$        3,677	$      474,953
3/1/2019	$     24,600	$            28,497	$        3,897	$      478,851
9/1/2019	$     24,600	$            28,731	$        4,131	$      482,982
3/1/2020	$     24,600	$            28,979	$        4,379	$      487,360
9/1/2020	$     24,600	$            29,242	$        4,642	$      492,002

Below are journal entries:

Date	Account	Debit	Credit
3/1/2017	Cash	$      464,536
	Discount on bonds payable	$         27,464
	Bonds payable		$      492,000
9/1/2017	Interest expense	$         27,872
	Discount on bonds payable	$           3,272
	Cash		$         24,600
12/31/2017	Interest expense	$         18,712
	Discount on bonds payable		$           2,312
	Interest payable		$         16,400
3/1/2018	Interest expense	$           9,356
	Interest payable	$         16,400
	Discount on bonds payable		$           1,156
	Cash		$         24,600
9/1/2018	Interest expense	$         28,277
	Discount on bonds payable		$           3,677
	Interest payable		$         24,600
12/31/2018	Interest expense	$         18,998
	Discount on bonds payable		$           2,598
	Interest payable		$         16,400