Question

Required information [The following information applies to the questions displayed below.) On January 1, 2021. Splash City issues $300,000 of 7% bonds, due in 10 years, with interest payable semiannually on June 30 and December 31 each year. Assuming the market interest rate on the issue date is 8%, the bonds will issue at $279.615. Required: 1. Complete the first three rows of an amortization table. (Round your intermediate and final answers to the nearest whole dollar.) Date Cash Paid Interest Expense Change in Carrying Value Carrying Value 1/1/21 6/30/21 12/31/21

Answer 1

1.

Par value of bonds = $300,000

Semi annual interest payment = 300,000 x 7% x 6/12

= $10,500

Effective interest rate = 8%

Semi annual Effective interest rate = 4%

Issue price of bonds = $279,615

Discount on bonds payable = Par value of bonds - Issue price of bonds

= 300,000 - 279,615

= $20,385

Date	Cash paid	Interest expense	Change in carrying value	Carrying value
1/1/21				279,615
6/30/21	10,500	279,615 x 4% = 11,185	11,185 - 10,500 = 685	280,300
12/31/21	10,500	280,300 x 4% = 11,212	11,212 - 10,500 = 712	281,012

2.

Journal

January 1, 2021	Cash	279,615
	Discount on bonds payable	20,385
	Bonds payable		300,000
June 30, 2021	Interest expense	11,185
	Discount on bonds payable		685
	Cash		10,500
Dec. 31, 2021	Interest expense	11,212
	Discount on bonds payable		712
	Cash		10,500

Kindly give a positive rating if you are satisfied with the answer. Feel free to ask if you have any doubt. Thanks.