Question

In each of the following independent cases, the company closes its books on December 31.

Sheffield Co. sells $467,000 of 10% bonds on March 1, 2020. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2023. The bonds yield 12%. Give entries through December 31, 2021.

Prepare a bond amortization schedule using the effective-interest method for discount and premium amortization. Amortize premium or discount on interest dates and at year-end.

Schedule of Bond Discount Amortization Effective-Interest Method Bonds Sold to Yield Cash Paid Interest Expense Discount Amortized Carrying Amount of Bonds Date 3/1/20 $ 9/1/20 3/1/21 9/1/21 3/1/22 9/1/22 3/1/23 9/1/23

Answer 1

Table values are based on:
Face Amount	$467,000
Interest Payment	$467,000*10%*6/12 =$23,350
Market Interest rate per period	6.00%
Cash Flow	Table Value(PV of 6% for 7 period)	Amount	Present Value
PV of Interest	5.58238	$23,350	$1,30,349
PV of Principal	0.66506	$4,67,000	$3,10,583
PV of Bonds Payable(Issue Price)			$4,40,932
Discount on Bonds =$467,000 - $440,932 =$26,068
Date	Cash Paid($467,000*5%)	Interest expenses(Bond carrying amount*6%)	Increase in carrying value	Bond carrying amount
Col I	Col II	Col III	Col IV(Col III - Col II)	Col V
01-Mar-20				$                            4,40,932
01-Sep-20	$                                                      23,350	$                                                            26,456	$                                              3,106	$                            4,44,037
01-Mar-21	$                                                      23,350	$                                                            26,642	$                                              3,292	$                            4,47,330
01-Sep-21	$                                                      23,350	$                                                            26,840	$                                              3,490	$                            4,50,820
01-Mar-22	$                                                      23,350	$                                                            27,049	$                                              3,699	$                            4,54,519
01-Sep-22	$                                                      23,350	$                                                            27,271	$                                              3,921	$                            4,58,440
01-Mar-23	$                                                      23,350	$                                                            27,506	$                                              4,156	$                            4,62,596
01-Sep-23	$                                                      23,350	$                                                            27,754	$                                              4,404	$                            4,67,000
Date	Accounts and explanation	Debit(in $)	Credit(in $)
01-Mar-20	Cash	$                                                         4,40,932
	Discount on Bonds Payable	$                                                            26,068
	Bonds Payable		$                                         4,67,000
01-Sep-20	Interest expenses	$                                                            26,456
	Discount on Bonds Payable		$                                              3,106
	Cash		$                                            23,350
31-Dec-20	Interest expenses($26,642*4/6)	$                                                            17,761
	Discount on Bonds Payable($3,292*4/6)		$                                              2,195
	Cash($23,350*4/6)		$                                            15,567
01-Mar-21	Interest expenses($26,642*2/6)	$                                                              8,881
	Discount on Bonds Payable($3,292*2/6)		$                                              1,097
	Cash($23,350*2/6)		$                                              7,783
01-Sep-21	Interest expenses	$                                                            26,840
	Discount on Bonds Payable		$                                              3,490
	Cash		$                                            23,350
31-Dec-21	Interest expenses($27,049*4/6)	$                                                            18,033
	Discount on Bonds Payable($3,699*4/6)		$                                              2,466
	Cash($23,350*4/6)		$                                            15,567