Question

On July 1, 2020 Sheridan Limited issued bonds with a face value of $980,000 due in 20 years, paying interest at a face rate of 10% on January 1 and July 1 each year. The bonds were issued to yield 11%. The company’s year-end was September 30. The company used the effective interest method of amortization.

Click here to view the factor table PRESENT VALUE OF 1.
Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1.

Using 1. factor Tables 2. a financial calculator, or 3. Excel function PV, calculate the premium or discount on the bonds. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 5,275.)

Choose the answer from the menu in accordance to the question statement                                                                      PremiumDiscount on bond

$

Enter your answer in accordance to the question statement

Prepare a partial Bond Premium/Discount Amortization Schedule for Sheridan Limited. Only prepare the entries in the schedule for July 1, 2020, January 1, 2021, and July 1, 2021. (Round answers to 0 decimal places, e.g. 5,275.)

Date

Cash Paid

Interest Expense

DiscountPremium Amortized

Carrying Amount

1-Jul-20

$

$

$

$

1-Jan-21

1-Jul-21

Prepare the journal entry to record the issue of the bonds. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)

Date	Account Titles and Explanation	Debit	Credit
July 1

Prepare the year-end accrual entry for Sheridan Limited at September 30, 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)

Date	Account Titles and Explanation	Debit	Credit
Sept. 30

Prepare the journal entry on January 1, 2021 when Sheridan makes the first payment of interest on the bonds. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1, 2021

List of accounts

• Accumulated Depreciation - Buildings
• Accumulated Depreciation - Equipment
• Accumulated Depreciation - Machinery
• Allowance for Doubtful Accounts
• Bad Debt Expense
• Bond Interest Payable
• Bonds Payable
• Buildings
• Cash
• Common Shares
• Cost of Goods Sold
• Depreciation Expense
• Equipment
• FV-NI Investments
• FV-OCI Investments
• Gain on Disposal of Buildings
• Gain on Disposal of Equipment
• Gain on Disposal of Machinery
• Gain on Redemption of Bonds
• Gain on Restructuring of Debt
• Gain on Sale of Investments
• Interest Expense
• Interest Income
• Interest Payable
• Interest Receivable
• Inventory
• Investment Property
• Land
• Loss on Disposal of Machinery
• Loss on Redemption of Bonds
• Loss on Retirement of Bonds
• Loss on Restructuring of Debt
• Loss on Sale of Investments
• Machinery
• Modification Gain or Loss
• Mortgage Payable
• No Entry
• Notes Payable
• Notes Receivable
• Sales Revenue
• Unearned Revenue
• Unrealized Gain or Loss
• Unrealized Gain or Loss - OCI

Answer 1

Answer 1.

Face Value of Bonds = $980,000

Annual Coupon Rate = 10.00%
Semiannual Coupon Rate = 5.00%
Semiannual Coupon = 5.00% * $980,000
Semiannual Coupon = $49,000

Time to Maturity = 20 years
Semiannual Period = 40

Annual Interest Rate = 11.00%
Semiannual Interest Rate = 5.50%

Issue Value of Bonds = $49,000 * PVA of $1 (5.50%, 40) + $980,000 * PV of $1 (5.50%, 40)
Issue Value of Bonds = $49,000 * 16.04612 + $980,000 * 0.11746
Issue Value of Bonds = $901,371

Answer 2.

Date Cash Paid 01-Jul-20 01-Jan-21 01-Jul-21 Interest Discount Expense Amortized $ 49,575 $ 575$ 49,607 $ 607 $ Carrying Amount 901,371 901,946 902,553 $ $ 49,000 $ 49,000 $

Answer 3.

Credit Date July 01 Account Titles and Explanation Cash Bonds Payable Debit 901,371 $ $ $ 901,371

Answer 4.

Credit Date Sept. 30 Debit 24,788 $ $ Account Titles and Explanation Interest Expense ($901,371 * 5.50% * 3/6) Bonds Payable Interest Payable ($ 49,000 * 3/6) $ $ 288 24,500

Answer 5.

Credit Date Jan. 01 Account Titles and Explanation Interest Expense ($901,371 * 5.50% * 3/6) Interest Payable Bonds Payable Interest Payable ($49,000 * 3/6) $ $ Debit 24,787 24,500 $ $ 287 49,000