Question

24 25 26 27 Problem 2: 28 On May 1st, 2021, Tyler Corp. issued $400,000, 12% bonds maturing on April 1, 2031 when the market rate was 29 10%. These bonds pay interest every October 31 and April 30. Tyler Corp's year end is December 31. Assuming Tyler uses the effective interest method, prepare the journal entry to record the issuance, and prepare an amortization schedule for the first 2 years of the bonds' lives. Finally, prepare the journal entry to be made on December 31, 2021 and December 31, 2022. 30 31 32 33 34 35 36 37 38

Answer 1

Solution 2) Face Value of Bonds PV factor (5%, 10 years x 2) Present Value of Face Value $4,00,000 0.37689 $1,50,756 (a) Interest @ 6% PV annuity factor (5%, 20) Present Value of Interest $ 24,000 12.46221 $ 2,99,093 (b) Issue Price of Bond (a+b) $4,49,849 Solution 2-a) Amortization Schedule Bond Cash Int Interest Premium Premium Carrying Period End paid Exp amortization Balance Value 01-04-2021 $ 49,849 $4,49,849 31-10-2021 $ 24,000 $ 22,492 $ 1,508 $ 48,341 $4,48,341 30-04-2022 $ 24,000 $ 22,417 $ 1,583 $ 46,759 $4,46,759 31-10-2022 $ 24,000 $ 22,338 $ 1,662 $ 45,096 $4,45,096 30-04-2023 $ 24,000 $ 22,255 $ 1,745 $ 43,351 $4,43,351 31-10-2023 $ 24,000 $ 22,168 $ 1,832 $ 41,519 $4,41,519

Credit Solution 2-b) Journal Entries in the books of Tyler Corp. Date General Journal Debit 31-12-2021 Interest Expense $ 7,472 Premium on Issue $ 528 Interest Payable (To record issue of bonds at premium) 31-12-2022 Interest Expense $ 7,418 Premium on Issue $ 582 Interest Payable (To record interest expense) $ 8,000 $ 8,000 Credit $2,15,000 $ 45,106 Solution 3) Journal Entries in the books of Hogwart's Corp Date Accounts Titles Debit 31-10-2020 Accounts Payable $ 2,15,000 Note Payable (To record Issuance of Note payable ) 31-10-2021 Interest Expense $ 15,050 Accounts Payable $ 30,056 Cash (To record Annual Installment) 31-10-2022 Interest Expense $ 12,946 Accounts Payable $ 32,160 Cash (To record Annual Installment) 31-10-2022 Interest Expense $ 10,695 Accounts Payable $ 34,411 Cash (To record Annual Installment) $ 45,106 $ 45,106

*last date would be 31-10-2023

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