Sage Co. sells $ 403,000 of 12% bonds on June 1, 2017. The bonds pay interest on

Question

Sage Co. sells $ 403,000 of 12% bonds on June 1, 2017. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2021. The bonds yield 10%. On October 1, 2018, Sage buys back $ 132,990 worth of bonds for $ 138,990 (includes accrued interest).

-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

-Prepare all of the relevant journal entries from the time of sale until the date indicated. Give entries through December 1, 2019. (Assume that no reversing entries were made.)

Explanation / Answer

Calculation of Present Value of Bond:

Bond Amortisation Schedule:

Journal Entries:

Issuance of Bond:

Interest entry:

Helf Year ending on Particular Cash Outflow PVIF PV of Cash Outflows Dec-17 Interest               24,180 0.952380952       23,028.57 Jun-18 Interest               24,180 0.907029478       21,931.97 Dec-18 Interest               24,180 0.863837599       20,887.59 Jun-19 Interest               24,180 0.822702475       19,892.95 Dec-19 Interest               24,180 0.783526166       18,945.66 Jun-20 Interest               24,180 0.746215397       18,043.49 Dec-20 Interest               24,180 0.71068133       17,184.27 Jun-21 Interest & Principal           4,27,180 0.676839362    2,89,132.24 Total    4,29,046.75

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