Question

Complete the following workout problems with journal entries, showing your work for full credit. Present value tables are available in your textbook, but may also be found easily online. Financial calculators are permitted, however, you must list the inputs you used in your calculation for full credit.

Answer 1

Working notes: Based on PV table Amount PV factor at 3% 0.74409 8.53020 Face value $1,000,000 Cash interest $50,000 Issue price of Bond Face value of Bond Premium on issue of bond PV of Cash flows $744,094 $426,5101 $1,170,604 $1,000,000 $170,604 Cash interest at 10% on $1,000,000 for 6 months Credit Date Jan 1, 2008 Debit $1,170,604 Account Titles and Explanation Cash Premium on bonds payable Bond payable (To record issue of bonds) $170,604 $1,000,000 Credit Date Account Titles and Explanation June 30, 2008 Interest expense Premium on bonds payable Cash (To record interest paid) Debit $35,118 $14,8821 $50,000 Credit Date Account Titles and Explanation Dec 31,2008 Interest expense Premium on bonds payable Cash (To record interest paid) Debit $34,672 $15,328 $50,000 Credit Date Account Titles and Explanation June 30, 2009 Interest expense Premium on bonds payable Cash (To record interest paid) Debit $34,212 $15,788) $50,000 Carrying value of bond July 1, 2009 Carrying value of retired bonds $1,124,606 $562,303 50% of above Bond redeemed face value Redemption value Gain on redemption of bond $500,000 $460,000 92% of above $102,303 Credit Debit $500,000 $62,303 Date Account Titles and Explanation July 1,2009 Bond payable Premium on bonds payable Gain on redemption of bond Cash (To record bond redeemed) $102,303 $460,000 Debit Credit $4,000 Date Account Titles and Explanation July 1,2009 Brokerage expenses Cash (To record brokerage paid) $4,000 Credit Interest paid on balance bonds Date Account Titles and Explanation Dec 31, 2009 Interest expense Premium on bonds payable Cash (To record interest paid) Debit $16,869 $8,131 $25,000 Working notes: a) Amortization table Effective-Interest Method Date Cash Interest Paid Interest expense Premium Amortization Unamortized Carrying Premium value Jan 2008 June 30, 2008 $50,000 Dec 31, 2008 $50,000 June 30, 2009 $50,000 After redemption Dec 31, 2009 $25,000 $35,118 $34,672 $34,212 $14,882 $15,328 $15,788 $170,604 $155,722 $140,394 $124,606 $1,170,604 $1,155,722 $1,140,394 $1,124,606 $16,869 $8,131 $54,172 $554,172