Question

22. Grove Corporation issued $6,000,000 of 8% bonds on October 1, 2020, due on October 1, 2025. The interest is to be paid twice a year on April 1 and October 1. The bonds were sold to yield 10% effective annual interest. Grove Corporation closes its books annually on December 31 (fiscal year end). Instructions: (10 + 5 + 5 = 18 points) (a) Prepare the amortization schedule showing entries up to second interest payment using the effective-interest method. (Round all answers to the nearest dollar) (b) Prepare the adjusting entry for December 31, 2021. Use the effective-interest method. (c) Compute the interest expense to be reported in the income statement for the year ended December 31, 2021.

CV= 5,536,696

Answer 1

The answer has been solved with detailed explanation and calculation. For detailed answer refer to the supporting sheet. For detailed answer refer to the supporting sheet.

Answer 2 Part 1) 3 Bond Amortization Table Cash Paid For Interest (600000*8%/2) Interest Expense (carrying value*10%/2) Discount Amortised (interest expense- cash paid) Unamortised Discount Carrying Value of Bond 4 Date 5 October 1,2020. 6 April 1,2021 7 October 1,2021 240000 240000 276835 278677 36835 38677 463304 426469 387792 5536696 5573531 5612208 Debit Credit 140305 9 Part 2) 10 Date Account Title 11 December 31,2021 Interest expense (5612208*5%*3/6) Discount on Bond Payable (140305-120000) Interest Payable (6000000*4%/2) (To record accrued interest expense) 13 20305 120000 16 Part 3) 17 Interest expense for the year ended 31 december 2021 18 = interest expense from 1 jan 2021 - 31 march 2021 + interest expense for second installment + interest accrued for 3rd installment 19 = (276835/2) + 278677 + 140305 20 = $ 557400 22 Thus the correct answer interest expense for year ended december 2021 is $557400