Lassen Corporation issued ten-year term bonds on January 1, 2017, with a face va
ID: 2446526 • Letter: L
Question
Lassen Corporation issued ten-year term bonds on January 1, 2017, with a face value of $800,000. The face interest rate is 6 percent and interest is payable semi-annually on June 30 and December 31. The bonds were issued for $690,960 to yeild an effective annual rate of 8 percent. The effective interest method of amortization is to be used. Prepare an bonds amortization table for the first three periods. What is the journal entryto record the second six-month period interest payment? Round to the nearest dollar.
Explanation / Answer
SOLUTION :
AMORISATION TABLE
Date
Interest (3%)
800000*0.03
Market rate (4%)
amortisation
Unamortised discount
Book value
A
B
C = F X 0.04
D = C-B
E
F = OPENING BALANCE + D
JAN 1, 2017
109040
690960
Jun 30, 2017
24,000
27,638
3,638
105,402
694,598
DEC 31, 2017
24,000
27,784
3,784
101,618
698,382
Jun 30, 2018
24,000
27,935
3,935
97,682
702,318
24,000
28,093
4,093
93,590
706,410
24,000
28,256
4,256
89,333
710,667
24,000
28,427
4,427
84,907
715,093
24,000
28,604
4,604
80,303
719,697
24,000
28,788
4,788
75,515
724,485
24,000
28,979
4,979
70,536
729,464
24,000
29,179
5,179
65,357
734,643
24,000
29,386
5,386
59,971
740,029
24,000
29,601
5,601
54,370
745,630
24,000
29,825
5,825
48,545
751,455
24,000
30,058
6,058
42,487
757,513
24,000
30,301
6,301
36,186
763,814
24,000
30,553
6,553
29,634
770,366
24,000
30,815
6,815
22,819
777,181
24,000
31,087
7,087
15,732
784,268
24,000
31,371
7,371
8,361
791,639
DEC 31, 2036
24,000
31,666
8,361
-
800,000
JOURNAL ENTRYTO RECORD THE SECOND SIX-MONTH PERIOD INTEREST PAYMENT
DEC 31, 2017
INTEREST EXPENSE
27,784
DISCOUNT ON BOND PAYABLE
3,784
CASH
24,000
Date
Interest (3%)
800000*0.03
Market rate (4%)
amortisation
Unamortised discount
Book value
A
B
C = F X 0.04
D = C-B
E
F = OPENING BALANCE + D
JAN 1, 2017
109040
690960
Jun 30, 2017
24,000
27,638
3,638
105,402
694,598
DEC 31, 2017
24,000
27,784
3,784
101,618
698,382
Jun 30, 2018
24,000
27,935
3,935
97,682
702,318
24,000
28,093
4,093
93,590
706,410
24,000
28,256
4,256
89,333
710,667
24,000
28,427
4,427
84,907
715,093
24,000
28,604
4,604
80,303
719,697
24,000
28,788
4,788
75,515
724,485
24,000
28,979
4,979
70,536
729,464
24,000
29,179
5,179
65,357
734,643
24,000
29,386
5,386
59,971
740,029
24,000
29,601
5,601
54,370
745,630
24,000
29,825
5,825
48,545
751,455
24,000
30,058
6,058
42,487
757,513
24,000
30,301
6,301
36,186
763,814
24,000
30,553
6,553
29,634
770,366
24,000
30,815
6,815
22,819
777,181
24,000
31,087
7,087
15,732
784,268
24,000
31,371
7,371
8,361
791,639
DEC 31, 2036
24,000
31,666
8,361
-
800,000
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