Question

Wilbury Corporation issued $1 million of 13.5% bonds for $985,071.68. The bonds are dated and issued October 1, 2019, are due September 30, 2020, and pay interest semiannually March 31 and September 30. Assume an effective yield rate of 14% Required: 1. Prepare a bond interest expense and discount amortization schedule using the stra n e method 2. Prepare a bond interest expense and discount amortization schedule using the effective interest method. 3. Prepare adjusting entries for the end of the fiscal year December 31, 2018, using the a straight-line method of amortization b. effective interest method of amortization 4. income before interest and income taxes of 30% in 2020 is $500,000, compute net income under och storative 6. Assume the company retired the bonds on June 30, 2020, at 98 plus accrued interest. Prepare the journal entries to record the band retirement using the a straight-line method of amortization b. effective interest method of amortization 6. Compute the company times interest eamed (pretax operating income divided by interest expense) for 2020 underach w ave

Answer 1

Discount on Bonds Payable = Face Value of Bond - Issue Price = $1,000,000 - $985,071.68 = $14,928.32 Under Straight Line Method of Amortization, Annual Discount Amortization = $14,928.32/4 Yrs = $3,732.08 Annual Discount Amortization = $14,928.32/8 = $1,866.04 WILBURY CORPORATION Bond Interest Expense and Discount Amortization Schedule Straight-Line Method Unamortized Interest Expense Book Value of Date Cash Credit Discount Credit Debit Bond 10/01/19 $ 985,071.68 03/31/20 $ 67,500.00 $1,866.04 $ 69,366.04 $ 986,937.72 09/30/20 $ 67,500.00 $1,866.04 $ 69,366.04 $ 988,803.76 03/31/21 $ 67,500.00 $1,866.04 $ 69,366.04 $ 990,669.80 09/30/21 $ 67,500.00 $1,866.04 $ 69,366.04 $ 992,535.84 03/31/22 $ 67,500.00 $1,866.04 $ 69,366.04 $ 994,401.88 09/30/22 $ 67,500.00 $1,866.04 $ 69,366.04 $ 996,267.92 03/31/23 $ 67,500.00 $1,866.04 $ 69,366.04 $ 998,133.96 09/30/23 $ 67,500.00 $1,866.04 $ 69,366.04 $ 1,000,000.00

WILBURY CORPORATION Bond Interest Expense and Discount Amortization Schedule Effective Interest Method 13.5% Bond sold to yield 14% Interest Expense Unamortized Book Value of Date Cash Credit Debit Discount Credit Bond 10/01/19 $ 985,071.68 03/31/20 $ 67,500.00 $ 68,955.02 $ 1,455.02 $ 986,526.70 09/30/20 $ 67,500.00 $ 69,056.87 $ 1,556.87 $ 988,083.57 03/31/21 $ 67,500.00 $ 69,165.85 $ 1,665.85 $ 989,749.42 09/30/21 $ 67,500.00 $ 69,282.46 $ 1,782.46 $ 991,531.88 03/31/22 $ 67,500.00 $ 69,407.23 $ 1,907.23 $ 993,439.11 09/30/22 $ 67,500.00 $ 69,540.74 $ 2,040.74 $ 995,479.84 03/31/23 $ 67,500.00 $ 69,683.59 $ 2,183.59 $ 997,663.43 09/30/23 $ 67,500.00 $ 69,836.44 $ 2,336.44 $ 999,999.87