Question

Ike issues $180,000 of 11%, three-year bonds dated January 1, 2019, that pay interest semiannually on June 30 and December 31. They are issued at $184,565. When the market rate is 10%.

A) Record the issue of bonds with a par value of $180,000 on January 1, 2019 at an issue price of $184,565.

	Date General Journal Debit Credit January 01

B) Complete the below table to calculate the total bond interest expense to be recognized over the bonds' life.

Amount repaid:

_____ payments of ______

Par value at maturity ________

Total repaid _______

Less amount borrowed _______

Total Bond Interest Expense $_______

C) Prepare an effective interest amortization table for the bonds' first two years.

Semiannual Interest Period-End	Cash Interest Paid	Bond Interest Expense	PremiumAmortization	UnamortizedPremium	CarryingValue
01/01/19
06/30/19
12/31/2019
06/30/20
12/31/20

D) i. Record the first interest payment on June 30.

  ii. Record the second interest payment on December 31.

Answer 1

Answer A

	Accounts and Explanations	Debit
01-Jan	Cash	184565
	11% Debenture		180000
	Premium on Issue of Debenture		4565
	(Recording issue of debenture at a Premium)

Answer B

Amount Repaid:
6 Semiannual Interest Payments	9900
Total Interest Payment	59400
Par Value at Maturity	180000
Total Repaid	239400
Total Borrowed	184565
Total Bond Interest Expense	54835

Answer C

Effective interest amortization table for the bonds' first two years

Semi Annual Interest period End	Cash Interest Paid	Bond Interest Expense	Premium Amortisation	Unamortised Premium	Carrying Value
01-01-2019	0	-	-	4,565.00	1,84,565.00
30-06-2019	9900	9,228.25	671.75	3,893.25	1,83,893.25
31-12-2019	9900	9,194.66	705.34	3,187.91	1,83,187.91
30-06-2020	9900	9,159.40	740.60	2,447.31	1,82,447.31
31-12-2020	9900	9,122.37	777.63	1,669.67	1,81,669.67

Answer D

	1st Interest Payment
30-06-2019	Interest Expense	9,228.25
	Premium on Issue of Debenture	671.75
	Cash		9900
	2nd Interest Payment
31-12-2019	Interest Expense	9,194.66
	Premium on Issue of Debenture	705.34
	Cash		9900