Question

Complete the following questions. In addition to answering the items below, you must submit an analysis of the assignment. Analyze the specific outcomes and write an analysis directed toward the team at BAJA Corporation describing what the numbers mean and how they relate to the business. Submit journal entries in the Excel file included in the module section and written segments in an MS Word document. For written answers, please make sure your responses are well-written, formatted per CSU-Global Guide to Writing and APA and have proper citations, where applicable. On January 1, 2017, BAJA Corporation purchased bonds with a face value of $600,000 for $616,747.06 The bonds are due June 30, 2020, carry a 13% stated interest rate, and were purchased to yield 12%. Interest is payable semiannually on June 30 and December 31. On March 31, 2018, in contemplation of a major acquisition, the company sold one-half the bonds for $319,000 including accrued interest; the remainder were held until maturity. 1. Prepare an investment interest income and bond premium amortization schedule using the effective interest method. 2. Prepare the journal entries to record the purchase of the bonds. 3. Prepare the journal entries to record each interest payment. 4. Prepare the journal entries to record the partial sale of the investment on March 31, 2018, and the retirement of the bond issue on June 30, 2020.

Journal Entries

Amort Effective Interest

Answer 1

1)
Present Value of Bonds
Face Value	$                                                                               600,000.00
Coupon Rate =13%/2	6.50%
PMT	39000
Nper	7
Rate =12%/2	6.00%
Present Value of Bonds	616,747.06
Premium on Bonds	16747.06
A	B	C	D	E	F	G
Period	Interest Payment = 6.50%  x face value	Interest Expenses = 6% x previous Book value	Amortization of Bonds Premium C-B	Credit Balance in bonds Premium Account	Credit Bal in Bonds Payable	Book Value of Bonds F+ E
				$ 16,747.06	$ 600,000.00	$ 616,747.06
June 30, 2017	$                                                                                 39,000.00	$         37,004.82	$   (1,995.18)	$ 14,751.88	$ 600,000.00	$ 614,751.88
Dec 31,2017	$                                                                                 39,000.00	$         36,885.11	$   (2,114.89)	$ 12,637.00	$ 600,000.00	$ 612,637.00
June 30, 2018	$                                                                                 39,000.00	$         36,758.22	$   (2,241.78)	$ 10,395.22	$ 600,000.00	$ 610,395.22
Dec 31,2018	$                                                                                 39,000.00	$         36,623.71	$   (2,376.29)	$   8,018.93	$ 600,000.00	$ 608,018.93
June 30, 2019	$                                                                                 39,000.00	$         36,481.14	$   (2,518.86)	$   5,500.07	$ 600,000.00	$ 605,500.07
Dec 31,2019	$                                                                                 39,000.00	$         36,330.00	$   (2,670.00)	$   2,830.07	$ 600,000.00	$ 602,830.07
June 30, 2020	$                                                                                 39,000.00	$         36,169.80	$   (2,830.20)	$        (0.13)	$ 600,000.00	$ 599,999.87
2)
Date	Account Titles and Explanation	Debit	Credit
Jan 1 2017	Investment In Bonds	$       600,000.00
	Preimum on Bonds Payable	$         16,747.06
	Cash		616,747.06
3)
June 30 2017	Cash	$         39,000.00
	Preimum on Bonds Payable		$     1,995.18
	Interest Revenue		$   37,004.82
Dec 31 2017	Cash	$         39,000.00
	Preimum on Bonds Payable		$     2,114.89
	Interest Revenue		$   36,885.11
4)
Mar 31  2018	Interest Receivables	$         19,500.00
	Preimum on Bonds Payable		$     1,120.89
	Interest Revenue		$   18,379.11
Mar 31 2018	Cash (319000+ 19500)	$       338,500.00
	Interest Receivables		$   19,500.00
	Preimum on Bonds Payable(1120.89/2 + 10395.22/2)		$     5,758.05
	Investment in bonds (600000/2)		$ 300,000.00
	Gain on sale		$   13,241.95

30-Jun-18	Cash	$         19,500.00
	Preimum on Bonds Payable		$     1,120.89
	Interest Revenue		$   18,379.11
Dec 31 2018	Cash	$         19,500.00
	Preimum on Bonds Payable		$     1,188.14
	Interest Revenue		$   18,311.86
30-Jun-19	Cash	$         19,500.00
	Preimum on Bonds Payable		$     1,259.43
	Interest Revenue		$   18,240.57
Dec 31 2019	Cash	$         19,500.00
	Preimum on Bonds Payable		$     1,335.00
	Interest Revenue		$   18,165.00
30-Jun-20	Cash	$         19,500.00
	Preimum on Bonds Payable		$     1,415.10
	Interest Revenue		$   18,084.90
30-Jun-20	Cash	$       300,000.00
	Investments in Bonds		$ 300,000.00