Question

Ellis issues 7.5%, five-year bonds dated January 1, 2017, with a $520,000 par value. The bonds pay interest on June 30 and December 31 and are issued at a price of $553,268. The annual market rate is 6% on the issue date. Required: 1. Complete the below table to calculate the total bond interest expense over the bonds' life. 2. Prepare a straight-line amortization table for the bonds' life. 3. Prepare the journal entries to record the first two interest payments. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Prepare a straight-line amortization table for the bonds' life. Carrying Value Semiannual Period- Unamortized End Premium 01/01/2017 06/30/2017 12/31/2017 06/30/2018 12/31/2018 06/30/2019 12/31/2019 06/30/2020 12/31/2020

Answer 1

1. Here's the amortization table for the bond:

$ Bond Face Value Bond Issued at Premium Bond Book Value Bond Interest Rate Market Intrest Rate Interest Payable (number of times in a year) 520,000 A 33,268 B 553,268 C=A+B 8%D 6% E Market Interest Date Interest in which Bond issued G=A*D)/F Amortisation of Bond Premium T=G-H H=(C*E)/F 1-Jan-17 30-Jun-17 31-Dec-17 30-Jun-18 31-Dec-18 30-Jun-19 31-Dec-19 30-Jun-20 31-Dec-20 30-Jun-21 31-Dec-21 Opening Balance in Bond Premium account ("closing balance of previous period (i.e.) from "K" highlighted Carrying value with same color Closing balance of and shown for easy| Bonds Bond Premium acct understanding") Payable Acct| K=J-1 Α Ι 33,268 520,000 30,366 33,268 520,000 27,377 30,366 520,000 24,298 27,377 520,000 21,127 24,298 520,000 17,861 21,127 520,000 14,497 17,861 520,000 11,032 14,497 520,000 7,463 11,032 520,000 3,787 7,463 520,000 3,787 520,000 19,500 19,500 19,500 19,500 19,500 19,500 19,500 19,500 19,500 19,500 16,598 16,511 16,421 16,329 16,234 16,136 16,035 15,931 15,824 15,714 2,902 2,989 3,079 3,171 3,266 3,364 3,465 3,569 3,676 3,787 Carrying value of Bond A+K 553,268 550,366 547,377 544,298 541,127 537,861 534,497 531,032 527,463 523,787 520,000

In order to fill the excel provided in question, please fill columns in RED font (i.e.) Amortization of Bond Premium & Carrying value of Bond" only. The other columns are presented for understanding of the calculations:

Here's the journal entry for first 2 interest payments:

1/1/2017	Dr. Cash	$         553,268
	Cr. Bond Payable		$                    520,000
	Cr. Bond Premium		$                       33,268
	(Being Bond issued at Premium)
6/30/2017	Dr. Interest Expense	$            16,598
	Dr. Premium on Bond Payable	$              2,902
	Cr. Cash		$                       19,500
	(Being Interest payment accounted)
12/31/2017	Dr. Interest Expense	$            16,511
	Dr. Premium on Bond Payable	$              2,989
	Cr. Cash		$                       19,500
	(Being Interest payment accounted)