Question

The Gold company issued 10% bonds dated January 1, 2020, with a principal amount of $1.2million. The bonds mature in 2028(10years). For bonds of similar risk and maturity, the market yield is 8%. Interest is paid semiannually on June 30 and December 31. Journal entry to record 2020/01/01, 06/30, and 12/31 using the effective interest method. Raise decimals to the next whole number.

Answer 1

Please find the attached sheets,

In the end the amount shall be equal to amount of principal paid for redemption of band payable. Other equity is used because the ultimate effect of excess interest will go into Other equity.

Please comment for any explanation,

Thanks,

х 9 Cla 28 june 2020 - Microsoft Excel Home Insert Page Layout Formulas Data Review View X Times New Rom - 11 A A 2 Wrap Text General 4 Cut En Copy Paste Format Painter Clipboard B I U Merge & Center 4.0 .00 .00 0 Insert Delete Format Conditional Format Cell Formatting as Table Styles Styles AutoSum - Fill Sort & Find & 2 Clear Filter - Select Editing Font Alignment Number Cells L K - M N 0 Р 1 فبرا G8 fx 60000 A B C D E 1 2 Bond 1200000 Period Basis 3 Coupan Rate 10% 0.05 4 Market Rate of interest 8% 0.04 5 Period 10 20 6 7 Journal Entry 8 01-01-2020 Accounts Debit Credit 9 Cash 1200000 10 Other Equity 163083.91 11 Bond Payable 1363083.92 12 To 10 % bond payable issued 13 30-06-2020 Interest expense 54523.36 14 Bond Payable 54523.3566 15 To Interest for first 6 month booked 16 Bond Payable 60000 17 Cash 60000 18 To Interest paid for first 6 month 19 31-12-2020 Interest expense 54304.29 20 Bond Payable 54304.2909 21 To Interest for first 6 month booked 22 Bond Payable 60000 23 Cash 60000 24 To Interest paid for first 6 month 25 Sheet1 Sheet2 Sheet3 Journal Sheet4 Sheets F H J 60000 Period Cashflow Discount rate @ 4% Discounted value 0 1200000 1200000 1 600001 0.961538462 57692.30769 2 600001 0.924556213 55473.37278 3 60000 0.888996359 53339.78152 41 60000 0.854804191 51288.25146 5 600001 0.821927107 49315.62641 6 600001 0.790314526 47418.87154 7 60000 0.759917813 45595.06879 8 60000 0.730690205 43841.4123 9 60000 0.702586736 42155.20413 10 600001 0.6755641691 40533.85013 11 60000 0.649580932 38974.85589 12 60000 0.624597051 37475.82297 13 600001 0.600574086) 36034.44517 14 60000 0.577475083 34648.50497 15 60000 0.555264503 33315.87016 16 600001 0.533908176 32034.49054 17 600001 0.513373246 30802.39475 18 60000 0.493628121 29617.68726 19 60000 0.474642424 28478.54544 20 1260000 0.456386946 575047.5522 1363083.916 1200000 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% Period Opening Bal Interest Installment Closing Balance 0 1363083.921 01 0 1363083.916 1 1363083.92 54523.357 60000 1357607.273 1357607.27 54304.291 60000 1351911.564 1351911.56 54076.463 60000 1345988.026 4 1345988.03 53839.521 60000 1339827.5471 1339827.55 53593.102 60000 1333420.6491 6 1333420.65 53336.826 60000 1326757.4751 1326757.48 53070.299 60000 1319827.774 8) 1319827.77 52793.111 60000 1312620.885 9 1312620.89 52504.835 60000 1305125.721 10 1305125.72 52205.029 60000 1297330.749 11 1297330.75 51893.23 60000 1289223.979 12 1289223.98 51568.959 60000 1280792.938 13| 1280792.94 51231.718 60000 1272024.656 14| 1272024.66 50880.986 60000 1262905.642 151262905.64 50516.226 60000 1253421.868 16 1253421.87 50136.875 60000 1243558.743 17 1243558.74 49742.35 60000 1233301.092 18 1233301.09 49332.044 60000 1222633.136 19 1222633.14 48905.325 60000 1211538.462 201 1211538.46 48461.538 12600001 0 Sheet6 Sheet7 Sheets Sheet9 Sheet10 Ready O! 100% + O X . 13:51 30-06-2020

х Cla 28 june 2020 - Microsoft Excel Home Insert Page Layout Formulas Data Review View X 4 Cut Times New Rom 11 A A 2 Wrap Text General Copy Paste B I U Merge & Center 4.0 .00 .00 0 Insert Delete Format Conditional Format Cell Formatting as Table Styles Styles AutoSum - Fill Sort & Find & 2 Clear Filter - Select Editing Format Painter Clipboard Font Alignment Number Cells Q3 fax А B C D E G H J к L M N o P 1 F =+C2*5% Period 0 2 3 4 Bond 1200000 Coupan Rate 0.1 Market Rate of interest 0.08 Period 10 Period Basis =+C3/2 =+C4/2 =+C5*2 1 5 12 3 6 4 5 6 7 8 9 10 Cashflow Discount rate @ 4% Discounted value Period Opening Bal Interest Installment Closing Balance 1200000 =1/1.04 F3 =+G3*H3 0.040 =+I24 10 10 =+M3+N3-03 =+C2*C3/2 =1/1.04 F4 =+G4*H4 10.04 1 =+P3 =+M4*K4 60000 =+M4+N4-04 60000 =1/1.04 F5 =+G5*H5 0.042 =+P4 =+M5*K5 60000 =+M5+N5-05 60000 =1/1.04 F6 =+G6*H6 0.04 3 =+P5 =+M6*K6 60000 =+M6+N6-06 60000 =1/1.044F7 =+G7*H7 10.04 4 =+P6 =+M7*K7 60000 =+M7+N7-07 60000 =1/1.04 F8 =+G8*H8 0.045 =+P7 =+M8*K8 60000 =+M8+N8-08 60000 =1/1.04 F9 =+G9*H9 10.04 16 =+P8 =+M9*K9 60000 =+M9+N9-09 60000 =1/1.04 F10 =+G10*H10 0.04 17 =+P9 =+M10*K10 60000 =+M10+N10-010 60000 =1/1.04 F11 =+G11*H11 0.048 =+P10 =+M11*K11 60000 =+M11+N11-011 60000 =1/1.04 F12 =+G12*H12 0.049 =+P11 =+M12*K12 60000 =+M12+N12-012 160000 =1/1.04 F13 =+G13*H13 0.04 10 =+P12 =+M13*K13 60000 =+M13+N13-013 60000 =1/1.04 F14 =+G14*H14 0.04 11 =+P13 =+M14*K14 60000 =+M14+N14-014 160000 =1/1.04°F15 =+G15*H15 0.04 12 =+P14 =+M15*K15 60000 =+M15+N15-015 160000 =1/1.04 F16 =+G16*H16 0.04 13 =+P15 =+M16*K16 60000 =+M16+N16-016 160000 =1/1.04 F17 =+G17*H17 10.04 14 =+P16 =+M17*K17 60000 =+M17+N17-017 60000 =1/1.04 F18 =+G18*H18 0.04 15 =+P17 =+M18*K18 60000 =+M18+N18-018 60000 =1/1.04^F19 =+G19*H19 0.04 16 =+P18 =+M19*K19 60000 =+M19+N19-019 160000 =1/1.04 F20 =+G20*H20 10.04 17 =+P19 =+M20*K20 60000 =+M20+N20-020 60000 =1/1.04 F21 =+G21*H21 0.04 18 =+P20 =+M21*K21 60000 =+M21+N21-021 60000 =1/1.04 F22 =+G22*H22 10.04 119 =+P21 =+M22*K22 60000 =+M22+N22-022 =60000+C2 =1/1.04 F23 =+G23*H23 0.04 20 =+P22 =+M23*K23 =+022-C20 =SUM(14:123) =+J3 11 12 7 Journal Entry 8 43831 Accounts Debit Credit 9 Cash =+C2 10 Other Equity =+D11-09 11 Bond Payable =+124 12 To 10 % bond payable issued 13 44012 Interest expense =+N4 14 Bond Payable =+C13 15 To Interest for first 6 month booked 16 =+B14 =+04 17 Cash =+C16 18 To Interest paid for first 6 month 19 44196 Interest expense =+N5 20 Bond Payable =+C19 21 =+B15 22 =+B20 =+010 23 Cash =+C22 24 To Interest paid for first 6 month 25 Sheet1 Sheet2 Sheet3 Journal Sheet4 13 14 15 16 17 18 19 20 Sheets Sheet6 Sheet7 Sheet7 Sheet8 Sheet9 Sheet10 IIII Ready O! 100% + O X 13:52 30-06-2020