Question

	Sandford Co. sells bonds on March 1, 2017. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2020. Pertinent information follows:
		Par value of the bonds					$ 500,000
		Stated interest rate					10%
		Bond yield rate					12%

1. Calculate the bond price and bond discount using EXCEL function.
2. Prepare amortization schedule
3. Prepare journal entries for year 2017 and 2018.

Answer 1

Solution:

$ Requirement a Calculation of Bond price using EXCEL function Par Value of bonds Stated Interest Rate half yearly Bond Yield Rate half yearly Time to Maturity Payment (pmt) ($500,000 * 10% *6/12) Price of Bonds (=-PV(0.06,7,25000,500000) 5,00,000 5% 6% 7 $ $ 25,000 4,72,088 Calculation of Bonds Discount Par Value of bonds Less: Price of bonds Bonds Discount $ $ $ 5,00,000 4,72,088 27,912

Requirement B Schedule of Bond Discount Amortization Effective - Interest Method Interest Discount Cash Paid Expense Amortized Date 03-01-2017 09-01-2017 03-01-2018 09-01-2018 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 03-01-2019 Carrying Amount of $4,72,088 $4,75,413 $4,78,938 $4,82,674 $4,86,635 $4,90,833 $4,95,283 $5,00,000 $28,325 $28,525 $28,736 $28,960 $29,198 $29,450 $29,717 $3,325 $3,525 $3,736 $3,960 $4,198 $4,450 $4,717 09-01-2019 03-01-2020 09-01-2020

Credit Requirement Journal Entries Date Accounts Titles Mar-3-2017 Cash Discount on Bonds Payable Bonds Payable Debit $4,72,088 $27,912 $5,00,000 $28,325 Sep-1-2017 Interest Expense Discount on Bonds Payable Cash $3,325 $25,000 $19,017 Dec-31-2017 Interest Expense ($28,525 * 4/6) Interest Payable $19,017 $9,508 $19,017 Mar-1-2018 Interest Expense ($28,525* 2/6) Interest Payable Discount on Bonds Payable Cash $3,525 $25,000 $28,736 Sep-1-2018 Interest Expense Discount on Bonds Payable Cash $3,736 $25,000 $19,307 Dec-31-2018 Interest Expense ($28,960 * 4/6) Interest Payable $19,307