Effective Interest Amortization On January 1, Eagle, Inc., issued $950,000 of 9%

Question

Effective Interest Amortization
On January 1, Eagle, Inc., issued $950,000 of 9%, 20-year bonds for $1,016,500 yielding an effective interest rate of 8%. Semiannual interest is payable on June 30 and December 31 each year. The firm uses the effective interest method to amortize the premium.

Required
a. Prepare an amortization schedule showing the necessary information for the first two interest periods. Round amounts to the nearest dollar.
b. Prepare the journal entry for the bond issuance on January 1.
c. Prepare the journal entry to record the bond interest payment and premium amortization at June 30.
d. Prepare the journal entry to record the bond interest payment and premium amortization at December 31.

a.

Year
Interest
Period
Interest
Paid Interest
Expense
Periodic
Amortization
Balance
of Unamortized
Discount Book Value
of Bonds
End of Period at issue 0 0 0 ? ? 1 1 ? ? ? ? ? 2 ? ? ? ? ?

Explanation / Answer

Req a: Amortization Table: Year Interest Interest Interest Periodic Balance of Book Value Period Paid Expense Amort Unamotized prem. Of bonds At issue 66500 1016500 1 1 42750 40,660 2,090 64,410 1,014,410 2 42750 40,576 2,174 62,236 1,012,236 Req Journal entries: Date Accounts title and explanations Debit $ Credit $ 1-Jan Cash Account Dr. 1016500      Bonds payable Account 950000      Premium on Bonds payable Account 66500 30-Jun Interest expense Account Dr. 40660 Premium on Bonds payable Account Dr. 3090      Cash account 42750 31-Dec Interest expense Account Dr. 40576 Premium on Bonds payable Account Dr. 2174      Cash account 42750

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