Question

On January 1, 2020, Sheffield Company sold 12% bonds having a maturity value of $600,000 for $645,489, which provides the bondholders with a 10% yield. The bonds are dated January 1, 2020, and mature January 1, 2025, with interest payable December 31 of each year. Sheffield Company allocates interest and unamortized discount or premium on the effective-interest basis.

Prepare the journal entry at the date of the bond issuance. (Round answer to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
January 1, 2020

  

  

Prepare a schedule of interest expense and bond amortization for 2020–2022. (Round answer to 0 decimal places, e.g. 38,548.)

Schedule of Interest Expense and Bond Premium Amortization Effective-Interest Method
Date		Cash Paid		Interest Expense		Premium Amortized		Carrying Amount of Bonds
1/1/20		$		$		$		$
12/31/20
12/31/21
12/31/22

  

  

Prepare the journal entry to record the interest payment and the amortization for 2020. (Round answer to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
December 31, 2020

  

Prepare the journal entry to record the interest payment and the amortization for 2022. (Round answer to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
December 31, 2022

Answer 1

A) Journal entry at the date of the bond issuance

1/1/20 Cash Dr. 645489

Premium on Bonds Payable. Cr. 45489

Bonds Payable. Cr. 600000

( Being, 12% bonds sold on premium)

B) BOND AMORTIZATION TABLE

12% Bonds Sold to Yield 10%

Date	Cash Paid	Interest Expense	Premium Amortized	Carrying Amount of Bonds
1/1/20				$645489
12/31/20	$72000	$64549	$7451	$638038
12/31/21	$72000	$63804	$8196	$629842
12/31/22	$72000	$62984	$9016	$620826

Cash paid = Maturity value*12%

= 600000*12%

= $72000

Interest Expense=Carrying Amount of Bond*10%

= 645489*10%

= $64549 (rounded off)

For 1st year and for next year it will be calculated in the same way

Premium Amortized = Cash Paid - Interest Expense

Carrying Amount = carrying Amount of bonds - premium Amortized

  

C) 31/12/2020. Bonds interest expense. Dr. 64549

Premium Bonds Payable. Dr. 7451

Cash. Cr. 72000

D) 31/12/22. Bonds interest expense. Dr. 62984

Premium Bonds Payable. Dr. 9016

Cash. Cr. 72000