Question

D. Prepare the Journal entry for the issuance of the band subsequent payments of interest and amortization of discounts, and final payment of the principal Date Accounts Debit Jan 1, 2020 Illustration #3 - BOND issued @ PREMIUM Tyriel Co. issues $100,000 Hond on Jan 1, 2020, due in 5 years on Dec 31, 2024 with 7% stated interest rate payable annually at year-end. At the time of issue, the market rate for such bonds is 5% A. Compute the present value of the bond IV value of the principal: PV value of the interest payments: PV (Selling price) of the bonds Dec 31, 2020 Dec 31, 2021 B. Interest Computations & Amortization of Premium Inteers Computation Premium on Rand Payable Dec 31, 2012 Dec 31, 2023 Dec 31, 2024 C. Prepare Bond Amortization Schedule Schedule of Bond Premium Amortization Annual Interest Payment S-Year, Stated Interest Bond Sold to Yield Date Cash Interest Premium Bands Premium Carrying Paid Expense Amortized Payable Balance Value Jan 1, 2020 Dec 31, 2020 Dec 31, 2021 Dec 31, 2012 Dec 31, 2023 Dec 31, 2024

Answer 1

Face Value of the Bond= $100000

Rate of Interest payable = 7% per annum paid at the end of each year

Issue date of the Bond = Jan 1 2020

Band is due on Dec 31, 2024

Market rate of Band = 5%

A. Computation of Present value of the Bond:

S.No	Discription	Amount	Present value Factor@5%	Present value
1	PV of Interest	7000	4.3295	30306.50
2	PV of Principal	100000	0.7835	78350
	PV of Bond			108656.50

The Bond Premium = 108656.50-100000 = 8656.50

B. Interest payments and Amortisation of Premiums:

Period	Cash paid	Interest Expense	Premium Amortised	Bonds Payable	Premium Balance	Carrying value
Jan 1 , 2020					8656.50	108656.50
Dec 31, 2020	7000	5432.82	1567.18	108656.50	7089.32	107089.32
Dec 31, 2021	7000	5354.47	1645.53	107089.32	5443.79	105443.79
Dec 31, 2022	7000	5272.19	1727.81	105443.79	3715.98	103715.98
Dec 31, 2023	7000	5185.80	1814.20	103715.98	1901.78	101901.78
Dec 31, 2024	7000	5098.22	1901.78	101901.78	__	100000

C. Bond amortisation schedule:

Here it is given that

The coupon rate of Interest =9%

Market rate = 7%

Keeping the remaining values given in the question are same,

The Value of the bond is

S.No	Discription	Amount	Present value Factor@7%	Present value
1	PV of Interest	9000	4.100	36900
2	PV of Principal	100000	0.7130	71300
	PV of Bond			108200

The Premium = 108200-100000= 8200

The Schedule of Premium and amortisation :

Period	Cash paid	Interest Expense	Premium Amortised	Bonds Payable	Premium Balance	Carrying value
Jan 1 , 2020					8200	108200
Dec 31, 2020	9000	7574	1426	108200	6774	106774
Dec 31, 2021	9000	7474.18	1525.82	106774	5248.18	105248.18
Dec 31, 2022	9000	7367.37	1632.63	105248.18	3615.55	103615.55
Dec 31, 2023	9000	7253.09	1746.91	103615.55	1868.64	101868.64
Dec 31, 2024	9000	7131.36	1868.64	101868.64	__	100000

D. Jornal Entry at the time of issue

Jan 1, 2020 Cash dr 108656.50

to Bond payable 100000

to Premium on bond payable 8656.50

At the time of interest payment every year , the following entry will be passed.

For the payment of interest on Dec 31 2020

Dec 31, 2020 Interest Expense dr 5432.82

Premium on bonds payable Dr 1567.18

To Cash 7000

Dec 31, 2021 Interest Expense dr 5354.47

Premium on bonds payable Dr 1645.53

To Cash 7000

Dec 31, 2022 Interest Expense dr 5272.19

Premium on bonds payable Dr 1727.81

To Cash 7000

Dec 31, 2023 Interest Expense dr 5185.80

Premium on bonds payable Dr 1814.20

To Cash 7000

Dec 31, 2024 Interest Expense dr 5098.22

Premium on bonds payable Dr 1901.78

To Cash 7000

At the time of payment of principal

Dec 31, 2024 Bonds payable Dr 100000

to Cash 100000

In this entry there will not be any Premium on Bonds payable. It ia because we have already passed saperate entry to this effect at the time of passing entry for the payment of interest expence. With that entry, the total amount of premium was already completely amortised. Hence, there will not be any balance in the remium on bonds payable account.