Exercise On January 1 2017 Su land Company sold 12% bonds having a maturity valu

ID: 2341514 • Letter: E

Question

Exercise On January 1 2017 Su land Company sold 12% bonds having a maturity value of $400 000 for $430 326, which provides the bondholders with a 10% yed. The bonds are dated January 1 2017 and ma ureja uary 1 2022, with interest payable December 31 of each year. Sunland Company allocates interest and unamortized discount or premium on the effective-interest basis. 14-10 Your answer is correct. Prepare the journal entry at the date of the bond issuance. (Round answer to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. DebitCredit January 1, 2017 cash 430326 Bonds Payable 400000 Premium on Bonds Payable 30326 SHOW LIST OF ACCOUNTS LINK TO TEXT

Explanation / Answer

Solution:-

(b).Prepare a schedule of interest expense and bond amortization for 2017-2019:-

= 430,326 - 4,967.4

= $425,358.5

= 425,358 * 10%

= $42,535.8

= 48,000 - 42,535.8

= $5,464.2

= 425,358.5 - 5,464.2

= $419,894.3

$419,894.3 * 10%

= $41,989.4

= 48,000 - 41,989.4

= $6,010.6

= 419,894.3 - 6010.6

= $413,883.7

Cash paid = $400,000 * 12%

= $48,000

Cash paid = $48,000

interest expense = Carrying value * 10%

= 430,326 * 10%

= $43,032.60

Interest expense = $43,032.60

Amortized premium = Cash paid - interest expense

= 48,000 - 43,032.60

= $4,967.4

Amortized premium =$4,967.4

(c).Prepare the journal entry to record the interest payment and the amortization for 2017:-

= 430,326 + 4,967.4

= $435,293.4

(d).Prepare the journal entry to record the interest payment and the amortization for 2019:-

= 41,989.4 + 6010.6

= $48,000

Date Cash paid Interest expense Amortized premium Carrying value January 1,2017 $430,326 December 1,2012 $48,000 $43,032.60 $4,967.4