Question

Hambelton Ltd. issued $4,800,000 of 5% bonds payable on 1 September 20X9 to yield 4%. Interest on the bonds is paid semi-annually and is payable each 28 February and 31 August. The bonds were dated 1 March 20X8, and had an original term of five years. The accounting period ends on 31 December. The effective-interest method is used. (PV of $1, PVA of $1, and PVAD of $1.) (Use appropriate factor(s) from the tables provided.)

Required:
1. Determine the price at which the bonds were issued. (Round time value factor to 5 decimal places. Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)

2. Prepare a bond amortization table for the life of the bond. (Round time value factor to 5 decimal places. Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount. Leave no cells blank - be certain to enter "0" wherever required.)

3.Prepare journal entries to record the issuance of the bonds, payment of interest, and all necessary adjustments through to the end of 20X10. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to the nearest whole dollar amount.)

4. Calculate the interest expense that would be recorded in each of 20X9 and 20X10. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)

5. Show how the bond would be presented on the statement of financial position as of 31 December 20X9 and 20X10. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)

Answer 1

1. Determine the price at which the bonds were issued. Amount of interest (4800000*5%*6/12) (A) P.V n = 71 = 2% (B) Present Value of Interest (A *B)=( C) PV of Face Value (4800000*.87056) = (D) Issue Price of the Bonds (C+D) 120000 6.47199 776639 4178688 4955327 Premium Amortization Net Bond Liability Unamortized Premium 16 2. Prepare a bond amortization table for the life of the bond. 17 18 Date Inerest Payment @5%/2 of Par Value Interest Expense 19 Beginning 120,000 99,107 120,000 98,689 120,000 98,262 120,000 97,828 120,000 97,384 120,000 96,932 120,000 96,472 20,893 21,311 21,738 22,172 22,616 23,068 23,528 155,327 134,433 113,122 91,384 69,212 46,596 23,528 4,955,327 4,934,433 4,913,122 4,891,384 4,869,212 4,846,596 4,823,528 4,800,000 0

29 3.Prepare journal entries to record the issuance of the bonds, payment of interest, and all necessary adjustments through to the end of 20X10. 30 20X9 1-Sep Cash 4,955,327 Bonds payable 4,800,000 Premium on Bonds Payable 155,327 (To record issue of Bonds at Premium) 66,071 13,929 80,000 39 31-Dec Interest expense Premium on Bonds Payable Accrued Interest Payable (To record the accrual of Interest payment) 40 20X10 28-Feb Accrued Interest Payable Interest expense Premium on Bonds Payable Cash (To record the first Interest payment) 41 80,000 33,036 6,964 120,000 31-Aug Interest expense Premium on Bonds Payable 98,689 21,311 Cash 120,000 (To record the Interest payment)

65,508 14,492 31-Dec Interest expense Premium on Bonds Payable Accrued Interest Payable (To record the accrual of Interest payment) 80,000 57 4. Calculate the interest expense that would be recorded in each of 20X9 and 20X10. 20X9 2X10 Interest expense 99,107 196,951 5. Show how the bond would be presented on the statement of financial position as of 31 December 20X9 and 20X10. Bonds Payable Premium on Bonds Payable 20x9 4,955,327 20,893 4,934,433 2X10 4,934,433 43,049 4,891,384