Question

I need help pls ASAP. Thank you

On July 1, 2020 Pharoah Limited issued bonds with a face value of $990,000 due in 20 years, paying interest at a face rate of 7% on January 1 and July 1 each year. The bonds were issued to yield 9%. The company’s year-end was September 30. The company used the effective interest method of amortization.

1) Using 1. factor Tables 2. a financial calculator, or 3. Excel function PV, calculate the premium or discount on the bonds.

2) Prepare a partial Bond Premium/Discount Amortization Schedule for Pharoah Limited. Only prepare the entries in the schedule for July 1, 2020, January 1, 2021, and July 1, 2021.

3) Prepare the journal entry to record the issue of the bonds

4) Prepare the year-end accrual entry for Pharoah Limited at September 30, 2020

5) Prepare the journal entry on January 1, 2021 when Pharoah makes the first payment of interest on the bonds.

Answer 1

Working notes: 1) Based on PV table Amount PV factor at 4.5% 0.1719 18.40158 Face value $990,000 Cash interest $34,650 Issue price of Bond Face value of Bond Discount on issue of bond PV of Cash flows $170,209 $637,615 $807,824 $990,000 $182,176 Cash interest at 7% on $990,000 for 6 months 2) Amortization table Effective-Interest Method Date Cash Interest Paid Interest expense Discount Amortization July 1, 2020 Jan 1, 2021 July 1, 2021 Unamortized Carrying Discount value $182,176 $807,824 $180,474 $809,526 $178,695 $811,305 $34,650 $34,650 $36,352 $36,429 $1,702 $1,779 3) Credit Date Account Titles and Explanation July 1, 2020 Cash Discount on bonds payable Bond payable (To record issue of bonds) Debit $807,824 $182,176 $990,000 4) Debit $18,176 Date Account Titles and Explanation Sep 30,2020 Interest expense Discount on bonds payable Interest payable (To record interest accrued) Credit $36,352 /2 for 3 months $851 $1,702/2 for 3 months $17,325 $34,650 /2 for 3 months 5) Credit Debit $18,176 $17,325 $36,352 /2 for 3 months Date Account Titles and Explanation Jan 1,2021 Interest expense Interest payable Discount on bonds payable Cash (To record interest paid) $851 $1,702/2 for 3 months $34,650