Question

CALCULATOR PRINTER VERSION (BACK NEXT Problem 14-05 In each of the following independent cases, the company doses its books on December 31. Monty Co. sells s462,000 of 10% bonds on March 1, 2020. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2023. The bonds yield 12%. Give entries through December 31, 2021. Prepare a bond amortization schedule using the effective-interest method for discount and premium amortization. Amortize premium or discount on interest dates and at year-end. (Round answers to 0 decimal places, eg. 38,548.) Schedule of Bond Discount Amortization Effective-Interest Method Bonds Sold to Yield Cash Paid Carrying Amount of Bonds Interest Discount Amortized Date Expense зу1/20 9/1/20 3/1/21 9/1/21 3/1/22 9/1/22 3/1/23 9/1/23 Prepare all of the relevant journal entries from the time of sale until December 31, 2021. (Assume that no reversing entries were made.) (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 0 decimal places e.g. S8,971. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit 3/1/20

Please show all work and calculations.

Answer 1

Semiannual interest = $ 462,000 x 10 % x 1/2 = $ 23,100

r = 12 % x 1/2 = 6 %

n = 7

PVA _{6%, n=7} = [ { 1 - ( 1/ 1.06 ) ⁷ / 0.06 ] = 5.5824

PV _{6%, n=7} = ( 1 / 1.06 ) ⁷ = 0.6651

Present value of the bonds = 23,100 x 5.5824 + 462,000 x 0.6651 = 128,953.44+ 307,276.20 = 436,229.64

Schedule of Bond Discount Amortization Effective Interest Method Bonds sold to yield 12 %
Date	Cash Paid	Interest Expense	Discount Amortized	Carrying Amount of Bonds
3/1/20				$ 436,230
9/1/20	$ 23,100	$ 26,174	3,074	439,304
3/1/21	23,100	26,358	3,258	442,562
9/1/21	23,100	26,554	3,454	446,016
3/1/22	23,100	26,761	3,661	449,677
9/1/22	23,100	26,981	3,881	453,558
3/1/23	23,100	27,213	4,113	457,671
9/1/23	23,100	27,460	4,329	462,000

In the books of Monty Co.

Date	Account Titles	Debit	Credit
		$	$
3/1/20	Cash	436,230
	Discount on Bonds Payable	25,770
	Bonds Payable		462,000
9/1/20	Interest Expense	26,174
	Discount on Bonds Payable		3,074
	Cash		23,100
12/31/20	Interest Expense	17,572
	Discount on Bonds Payable		2,172
	Interest Payable		15,400
3/1/21	Interest Expense	8,786
	Interest Payable	15,400
	Discount on Bonds Payable		1,086
	Cash		23,100
9/1/21	Interest Expense	26,554
	Discount on Bonds Payable		3,454
	Cash		23,100
12/31/21	Interest Expense	17,841
	Discount on Bonds Payable		2,441
	Interest Payable		15,400