Question

On July 1, 2020 Splish Limited issued bonds with a face value of $1,090,000 due in 20 years, paying interest at a face rate of 8% on January 1 and July 1 each year. The bonds were issued to yield 10%. The company’s year-end was September 30. The company used the effective interest method of amortization.

Using 1. factor Tables 2. a financial calculator, or 3. Excel function PV, calculate the premium or discount on the bonds. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 5,275)

2. Prepare a partial Bond Premium/Discount Amortization Schedule for Splish Limited. Only prepare the entries in the schedule for July 1, 2020, January 1, 2021, and July 1, 2021.

3. Prepare the journal entry to record the issue of the bonds

Answer 1

Table values are based on:
n=	20
i=	5.0%
Cash Flow	Table Value	Amount	Present Value
PV of Interest	12.46221	$43,600	$5,43,352
PV of Principal	0.37689	$10,90,000	$4,10,810
PV of Bonds Payable			$9,54,162
Discount on issue of Bonds =$1,090,000 - $954,162 =$135,838
Date	Interest Payment($1,090,000*4%)	Interest expenses(Bond carrying amount*5%)	Discount amorrtization	Bond carrying amount
Col I	Col II	Col III	Col IV(Col III - Col II)	Col V
July 1,2020				$                  9,54,162
January 1,2021	$                                                 43,600	$                                                              47,708	$                                              4,108	$                  9,58,270
July 1,2021	$                                                 43,600	$                                                              47,914	$                                              4,314	$                  9,62,584
	Date	Accounts and explanation	Debit(in $)	Credit(in $)
	July 1,2020	Cash	9,54,162
		Discount on Bonds Payable	1,35,838
		Bonds Payable		10,90,000
	January 1,2021	Interest expenses	47,708
		Cash		43,600
		Discount on Bonds payable		4,108
	July 1,2021	Interest expenses	47,914
		Cash		4,314
		Discount on Bonds payable		43,600