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Computer Inc. is one of the pioneers in the manufacture of microprocessor for computers. On April...

Computer Inc. is one of the pioneers in the manufacture of microprocessor for computers. On April 1, 2018, Intel issued $1,600,000 of 12% face value bonds for $1,703,411.40. The bonds are due in 4 years, and pay interest semiannually on September 30 and March 31. Intel sold the bonds to yield 10%.

  1. Use the spreadsheet included in the module section to prepare a bond interest expense and premium amortization schedule using the straight-line method.
  2. Use the same spreadsheet to prepare a bond interest expense and premium amortization schedule using the effective interest method.
  3. Prepare any adjusting entries for the end of the fiscal year, December 31, 2018, using the:
    1. straight-line method of amortization
    2. effective interest method of amortization

Assume the company retires the bonds on June 30, 2019, at 103 plus accrued interest. Prepare the journal entries to record the bond retirement using the straight-line method of amortization and the effective interest method of amortization.

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Straight-line method Amortisation It is reasonable that a bond promising to pay 12% interest will sell for more than its face value when the market is expecting to earn only 10% interest. Bond Rate /Coupon Rate Market rate Face Value or Maturity Value Market Value Life Premium 12% Semiannual 10%) Semiannual 6% 5% 1,600,000 1,703,411 4 Semiannual 103,411 Straight-line method Amortisation Credit Amortisation ofCredit Balance in balance in Bond Premium Bond Premiumbond payable Interest Payment (Coupon Rate FV) Cash paid Interest Expense IC-BI account Book Value of Bond Date Account 103,411 1,600,000 1-Apr-18 30-Sep-18 31-Mar-19 30-Sep-19 31-Mar-20 96,000 96,000 96,000 96,000 96,000 96,000 96,000 96,000 (12,926) (12,926) (12,926) (12,926) (12,926) (12,926) (12,926) (12,926) 1,703,411 1,690,485 1,677,559 1,664,632 1,651,706 1,638,779 1,625,853 1,612,926 1,600,000 90,4851,600,000 77,559 1,600,000 4,632 1,600,000 51,706 1,600,000 83,074 83,074 83,074 83,074 83,074 83,074 83,074 83,074 30-Sep-20 33.779 1,600,0001 25,8531,600,000 31-Mar-21 30-Sep-21 31-Mar-22 12,9261,600,000 1,600,000

Journal Ent Debit Credit 1-Apr-18 Cash 1,703,411 Bond Payable Premium on Bond Payable 1,600,000 103,411 30-Sep-18 Interest expense 83,074 12,926 Premium on Bond Payable Cash 96,000 41,537 6,463 31-Dec-18 Interest expense Premium on Bond Payable Interest Payable to record Interest expense for 3 months 48,000 31-Mar-19 Interest Expense Interest pavable Premium on Bond Payable Cash 41,537 48,000 6,463 96,000 Bond Retirement befor Maturi The first step to account for this bond retirement is to bring the accounting for interest up to date 30-Jun-19 Interest expense 41,537 6,463 Premium on Bond Pavable Interest Payable (to record Interest expense for 3 monhs) 48,000 Then, the actual bond retirement can be recorded, with the difference between the up-to-date carrying value and the funds utilized being recorded as a loss (debit) or gain (credit Balance in premium Account Balance in Bonds payable Cash payble for Bond Retirement @ $103 Cash payble for Accrued Interest Total Cash Payable 71,095 1,600,000 1,648,000 48,000 1,696,000 30-Jun-19 Bonds Payable 1,600,000 71,095 48,000 Premium on Bond payble Interest Pavable gain on Bond Retirement Cash ( $103 Accrued interest To record early retirement of Bond 23,095 1,696,000effective interest method of amortization Bond Rate/Coupon Rate Market rate Face Value or Maturity Value Market Value Life Premium 12.00%) Semiannual 10.00%) Semiannual 6.00% 5.00% 1,600,000 1,703,411 4 Semiannual 103,411 Interest Expense (Market rate previous book value in G) Amortisati Credit Effective on of Bond Credit Balance in balance in Interest rate Premium Bond Premium bond payable Date Interest Payment (Coupon Rate F method C-B Account account Book Value of Bond 18 30-Sep-18 31-Mar-19 30-Sep-19 31-Mar-20 30-Sep-20 31-Mar-21 30-Sep-21 31-Mar-22 1,600,000 1,600,000 1,600,000 1,600,000 1,600,000 1,600,000 1,600,000 1,600,000 1,600,000 1,703,411 1,692,582 1,681,211 1,669,272 1,656,735 1,643,572 1,629,751 1,615,238 1,600,000 85,171 84,629 96,000 96,000 96,000 96,000 96,000 96,000 96,000 96,000 768,000 10,829 11,371 84,061 (11,939) 83,464(12,536) 13,163 13,821 14,512 80,762 (15,238) 664,589 (103,411) 92,582 81,211 69,272 56,735 43,572 29,751 15,238 -0 82,837 82,179 81,488Journal Ent Debit Credit 1-Apr-18 Cash 1,703,411 Bond Payable Premium on Bond Payable 1,600,000 103,411 85,171 10,829 30-Sep-18 Interest expense Premium on Bond Payable Cash 96,000 31-Dec-18 Interest expense 42,315 5,685 Premium on Bond Payable Interest Payable (to record Interest expense for 3 months) 48,000 31-Mar-19 Interest Payable Interest expense Premium on Bond Payable Cash 48,000 42,315 5,685 48,000 Bond Retirement befor Maturi The first step to account for this bond retirement is to bring the accounting for interest up to date 30-Jun-19 Interest expense 42,030 5,970 Premium on Bond Payable Interest Pavable (to record Interest expense for 3 monhs) 48,000 Then, the actual bond retirement can be recorded, with the difference between the up-to-date carrying value and the funds utilized being recorded as a loss (debit) or gain (credit) Balance in premium Account 75,241 1,600,000 Balance in Bonds payable Cash payble for Bond Retirement @ $103 Cash payble for Accrued Interest Total Cash Payable 1,648,000 48,000 1,696,000 30-Jun-19 Bonds Payable 1,600,000 75,241 48,000 Premium on Bond pavble Interest Payable gain on Bond Retirement Cash (@ $103 Accrued interest) To record early retirement of Bond 27,241 1,696,000

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