Question

Scott Matthew, Inc. issued $300,000 of 15%, five-year bonds payable on January 1, 2018. The market interest rate at the date of issuance was 12%, and the bonds pay interest semiannually. able.) i Requirements le.) 1. (Use the factor tables provided with factors rounded to How much cash did the company receive upon issuance of the bonds payable? (Round to the nearest dollar.) Prepare an amortization table for the bond using the effective-interest method, through the first two interest payments. (Round to the nearest dollar.) Journalize the issuance of the bonds on January 1, 2018, and the first and second payments of the semiannual interest amount and amortization of the bonds on June 30, 2018, and December 31, 2018. Explanations are not required.

Answer 1

Answer 1.

Face Value of Bonds = $300,000

Annual Coupon Rate = 15.00%
Semiannual Coupon Rate = 7.50%
Semiannual Coupon = 7.50% * $300,000
Semiannual Coupon = $22,500

Time to Maturity = 5 years
Semiannual Period = 10

Annual Interest Rate = 12.00%
Semiannual Interest Rate = 6.00%

Issue Value of Bonds = $22,500 * PVA of $1 (6.00%, 10) + $300,000 * PV of $1 (6.00%, 10)
Issue Value of Bonds = $22,500 * 7.36009 + $300,000 * 0.55839
Issue Value of Bonds = $333,119

Answer 2.

Date Cash Paid Interest Expense Premium Amortized Jan. 01, 2018 June 30, 2018 Dec. 31, 2018 Unamortized Carrying Value Premium $ 33,119 $ 333,119 $ 30,606 $ 330,606 $ 27,942 $ 327,942 $ $ 22,500 $ 22,500 $ 19,987 19,836 $ $ 2,513 2,664

Answer 3.

Credit Debit 333,119 $ 300,000 33,119 Date General Journal Jan. 01, 2018 Cash Bonds Payable Premium on Bonds Payable June 30, 2018 Interest Expense Premium on Bonds Payable Cash Dec. 31, 2018 Interest Expense Premium on Bonds Payable Cash 19,987 2,513 $ 22,500 19,836 2,664 22,500