Question

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E14.9B (LO 1) (Entries and Questions for Bond Transactions) On July 1, 2020, Sugarland Company issued $2,000,000 face value of 10%, 10-year bonds at $1,770,602, a yield of 12%. Sugarland uses the effective-interest method to amortize bond pre- mium or discount. The bonds pay semiannual interest on June 30 and December 31. Instructions (a) Prepare the journal entries to record the following transactions: (1) The issuance of the bonds on July 1, 2020. (2) The payment of interest and the amortization of the premium on December 31, 2020. (3) The payment of interest and the amortization of the premium on June 30, 2021. (4) The payment of interest and the amortization of the premium on December 31, 2021.

Answer 1

Cah Flow Face value of bond Issue Price of Bonds Present Value 2,000,000 1,770,602 Discount on issue of Bonds 229,398 Bond Discount Amortization Schedule Date Interest Paid-2000000 x 10 % x 6/12 Interest Expense- Preceeding Bond Carrying Value X 8% X Discount Amortization Unamortized Discount Bonds Carrying Amount period A C=B-A D=D-C E = Previus E +C july 1 2020 1 dec 31 2020 2 july 1 2021 3 dec 31 2021 4july 1 2022 100,000 $ 100,000 $ 100,000 $ 100,000 $ 106,236 $ 106,610 $ 107,007 $ 107,427 $ 6,236 $ 6,610 $ 7,007 $ 7,427 $ 229,398 $ 223,162 $ 216,552 $ 209,545 202,117 $ 1,770,602 1,776,838 1,783,448 1,790,455 1,797,883 $

Date Account Title and Explanation Debit credit 1) july 1 2020 1,770,602 229,398 Cash Discount on Issue of Bonds Bonds Payable (record the issue of bonds) 2,000,000 2) dec 31 2020 106,236 Interest Expense Discount on issue of Bonds Cash (Record the interest paid) 6,236 100,000 3) june 30 2021 106,610 Interest Expense Discount on issue of Bonds Cash (Record the interest paid) $ 6,610 100,000 4) dec 31 2021 107,007 7,007 Interest Expense Discount on issue of Bonds Cash (Record the interest paid) 100,000 Please comment if you have any doubt Please give thumps up if you satisfied with the answer