Question

Shamrock Co. sells $365,000 of 12% bonds on June 1, 2020. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2024. The bonds yield 8%. On October 1, 2021, Shamrock buys back $116,800 worth of bonds for $123,800 (includes accrued interest). Give entries through December 1, 2022.
(b) Shamrock Co. sells $365,000 of 12% bonds on June 1, 2020. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2024. The bonds yield 8%. On October 1, 2021, Shamrock buys back $116,800 worth of bonds for $123,800 (includes accrued interest). Give entries through December 1, 2022. Prepare a bond amortization schedule using the effective-interest method for discount and premium amortization. Amortize premium or discount on interest dates and at year-end. (Round answers to o decimal places, e.g. 38,548.) Schedule of Bond Discount Amortization Effective-Interest Method Bonds Sold to Yield Cash Paid Interest Expense Premium Amortized Carrying Amount of Bonds Date 6/1/20 $ $ $ 12/1/20 6/1/21 12/1/21 6/1/22 12/1/22 6/1/23 12/1/23 6/1/24 * Difference due to rounding

Answer 1

(b)		Schedule of bond premium amortization
			Effective interest method
			Bonds sold to yield
	Date	Cash paid	Interest expense	Premium amortized	Carrying amount of bonds
		a	b	c=a-b
	6/1/20.				414149
	12/1/20.	21900	16566	5334	408815
	6/1/21.	21900	16353	5547	403268
	12/1/21.	21900	16131	5769	397498
	6/1/22.	21900	15900	6000	391498
	12/1/22.	21900	15660	6240	385258
	6/1/23.	21900	15410	6490	378768
	12/1/23.	21900	15151	6749	372019
	6/1/24.	21900	14881	7019	365000

Interest expense=Beginning carrying value of the bond*Bonds yield for 6 months
Carrying value of the bond=Beginning carrying value of the bond-Premium amortized
Date	Account titles and explanation					Debit	Credit
June 1,2020.	Cash				(Note:1)	414149
	Premium on bonds payable				(Plug)		49149
	Bonds payable						365000
	(Issue of bonds at premium)
Dec 1,2020.	Interest expense		(Ref amortization schedule)			16566
	Premium on bonds payable					5334
	Cash						21900
	(Interest paid)
Dec 31,2020.	Interest expense		16353*(1/6)			2725
	Premium on bonds payable			(Plug)		925
	Interest payable		21900*(1/6)				3650
	(Interest accrued for Dec month)
June 1,2021.	Interest expense		16353*(5/6)			13628
	Interest payable					3650
	Premium on bonds payable			(Plug)		4622
	Cash						21900
	(Interest paid)
Oct 1,2021.	Interest expense				(Note:2)	3441
	Premium on bonds payable				(Plug)	1231
	Cash						4672
	(Interest paid on bonds bought back)
Oct 1,2021.	Bonds payable					116800
	Premium on bonds payable				(Note:3)	11852
	Gain on redemption of bonds				(Plug)		9524
	Cash	(By reducing interest)		(123800-4672)			119128
	(To record buy back of bonds)
Dec 1,2021.	Interest expense		(16131*68%)			10969
	Premium on bonds payable				(Plug)	3923
	Cash		(21900*68%)				14892
	(Interest paid)
Dec 31,2021.	Interest expense		15900*68%*(1/6)			1802
	Premium on bonds payable			(Plug)		680
	Interest payable		21900*68%*(1/6)				2482
	(Interest accrued for Dec month)

9010 2482 3400 14892 June 1,2022. Interest expense 15900*68% *(5/6) Interest payable Premium on bonds payable (Plug) Cash (21900*68%) (Interest paid) Dec 1,2022. Interest expense (15660*68%) Premium on bonds payable (Plug) Cash (21900*68%) (Interest paid) 10649 4243 14892 Note: 1 Bond issue price=(Present value of bond interest payment+Present value repayment of bond at maturity) Present value of bond interest payment=Interest expense *Discount factor at market rate for 6 months over the semi-annual pay period Interest expense=365000*12%*6/12=$ 21900 Market rate for 6 months=8%*(6/12)=4% Semi-annual pay period=June 1,2020 to June 1,2024=8 Present value of bond interest payment=Interest expense*PVA of $1 at 4% for 8 years=21900*6.73274=$ 147447 Present value repayment of bond at maturity=Maturity value *Discount factor at market rate for 6 months at the end of the term of bond Present value repayment of bond at maturity=365000*PV of $1 at 4% for year 8=365000*0.73069=$ 266701.9 Bond issue price=147447+266701.95$ 414149

Note:2 % of bond bought back=116800/365000=0.32=32% Interest expense for 4 months=16131*32%*4/6=$ 3441 Interest paid for 4 months=21900*32%*4/6=$ 4672 Note:3 Premium on bonds payable consist of unamortized premium related to bonds bought back Premium on issue=$ 49149 Premium amortized till Oct 1,2021=5334+5547+1231=$ 12112 Unamortized premium=49149-12112=$ 37037 Unamortized premium related to bonds bought back=37037*32%=$ 11852