Question

On January 1, 2021, Feather Pillows, Inc. issued 8% bonds dated January 1, with a face amount of $800,000. The bonds mature on December 31, 2025 (5 years) and pay interest semi-annually. The market yield for bonds of similar risk and maturity was 6% when the bonds were issued. Prepare, in good form, all the journal entries and amortization schedule for the bonds.

Answer 1

Annual coupon = $ 800,000 x 8 % = $ 64,000 Effective interest rate = 6% PVA 6 %, n=5 = 4.2124 PV 6 %, n=5 = 0.7473 Issue price of bonds = ($64,000 X 4.2124) + ($800,000 X 0.7473) = $269,591 + $597,840 = $8,67,431 Date General Journal Debit | Credit January 1, 2021 Cash $8,67,431 Bonds Payable $8,00,000 Premium on bonds payable $ 67,431 (To record issue of bond at premium) December 31, 2021 Interest Expense $ 52,046 Premium on bonds payable $ 11,954 Cash $ 64,000 (To record insterest expense and premium amortized) |

Bond Amortization Schedule: Period Amount Paid Interest Expense Premium Amortization Bond Carrying Value 0 8,67,431.00 1 $ 64,000.00 52,045.86 11,954.14 8,55,476.86 64,000.00 51,328.61 12,671.39 8,42,805.47 64,000.00 50,568.33 13,431.67 8,29,373.80 64,000.00 49,762.43 14,237.57 8,15,136.23 64,000.00 48,863.77 15,136.23 8,00,000.00

། ། ། ། PRESENT VALUE OF 1 TABLE 1% 2% 0,9901 ། 0.9804 0.9803 0.9612 0.9706 0.9423 0.961 0.9239 0.95150.9057 0.9421 ། 0.888 3% 0.9709 ། ། 0.9426 0.9151 0.8885 0.86260 0.8375 4 % 0.9615 0.9246 0.889 0.8548 .8219 0.7903 5 % ། 0.9524 0.907 0.8638 0.8227 0.7835 0.74620 6 % 0.9434 ། 0.89 0.8396 0.7921 0.7473 .705 3 % 0.9259 0.8573 0.7938 0,735 0.6806 0.6302 10% 0.9091 0.8265 0.7513 0.683 0.6209 0.5645 12% ། 0.8929 0.7972 0.7118 0.6355 0.5674 0.5066 ། ། ས ད བ བ བ བ བ བ བ པ 10% PRESENT VALUE ANNUITY FACTORS (PVAF) TABLE 1% 2% ། 3% ། 4% ། 5% ། 5% ། 3% ། 10% ། 12%། 1 0.99009901 0.98039216 0.97087379 0.96153846 0.95238095 0.94339623 0.92592593 0.90909091 0.89285714 1.97039506 1.94156094 1.9134697 1.88609467 1.85941043 1.83339267 1.78326475 1.73553719 1.69005102 2.940985212.883883272 .82861135 2.77509103 2.72324803 2.673011952 .57709699 2.48685199 2.40183127 3.90196555 3.8077287། 3.7170984 3.62989522 3.54595053.46510561 3.312126843.169865453.03734935 5 4.85343124 4.71345951 4.57970719 4.45182233 4.32947667 4.21236379 3.99271004 3.790786773.6047762 6 ། 5.79547647 5.601430895.41719144 5.242136865.07569207 4.91732433 4.622879664.35526074.11140732 | 3.90196555 388388327 282861135 1.8860༠༢67 1.6594304 094339623 0.925993