Delly & Company issues $1,250,000 of 8.5%, three-year bonds dated January 1, 201

Question

Delly & Company issues $1,250,000 of 8.5%, three-year bonds dated January 1, 2014, that pays interest semi-annually. Interest is paid on June 30 and December 31. They are issued at $1,299,955 and the market rate is 7% on the date of issue.

(I have everything except questions 6 and 7, can someone please help with this!)

Required:

1.Prepare the January 1, 2014, journal entry to record the bonds' issuance.

2.Determine the total bond interest expense to be recognized over the bonds' life.

3.Prepare an effective interest amortization table for the bonds.

4.Prepare a straight-line interest amortization table for the bonds.

5.Prepare the journal entries to record the first two interest payments assuming the effective interest method is used.

6.Prepare the journal entry to record the bonds' retirement on January 1, 2015, at 106.

7.Assume that the market rate on January 1, 2014, is 14% instead of 11%. Without presenting numbers, describe how this change affects the amounts reported on Baides’ financial statements.

Date Account Names Debit Credit 1/1/2014 Cash $1,299,995.00 Bonds payable $1,250,000.00 Premium in issue of bonds $49,995.00 Semi-annual interest payments = $1,250,000 * 8.5% * ½ = $53,125 No. of coupon payments = 3 years * 2 = 6 Total interest payments = $53,125 * 6 = $318,750 Interest expense = Interest payment - Amortization of premium on issue of bonds = $318,750 - $49,995 = $268,755 Effective Interest Amortization Number of payments Date of Payment Payment Amount Bond Interest Expense Premium Amortization Unamortized Premium Carrying Value of Bond ($1,250,000 * 8.5%* 1/2) (Carrying amount * 7% * 1/2) (Interest payment - Interest expense) 0 1/1/2014 $49,995.00 $1,299,995.00 1 6/30/2014 $53,125.00 $45,499.83 $7,625.18 $42,369.83 $1,292,369.83 2 12/31/2014 $53,125.00 $45,232.94 $7,892.06 $34,477.77 $1,284,477.77 3 6/30/2015 $53,125.00 $44,956.72 $8,168.28 $26,309.49 $1,276,309.49 4 12/31/2015 $53,125.00 $44,670.83 $8,454.17 $17,855.32 $1,267,855.32 5 6/30/2016 $53,125.00 $44,374.94 $8,750.06 $9,105.26 $1,259,105.26 6 12/31/2016 $53,125.00 $44,019.74 $9,105.26 $0.00 $1,250,000.00 Totals $318,750.00 $268,755.00 $49,995.00 Bond Amortization Schedule Number of payments Date of Payment Payment Amount Premium Amortization Bond Interest Expense Unamortized Premium Carrying Value of Bond ($1,250,000 * 8.5%* 1/2) ($49,995/6) (Payment - Premium Amortisation) 0 1/1/2014 $49,995.00 $1,299,995.00 1 6/30/2014 $53,125.00 $8,332.50 $44,792.50 $41,662.50 $1,291,662.50 2 12/31/2014 $53,125.00 $8,332.50 $44,792.50 $33,330.00 $1,283,330.00 3 6/30/2015 $53,125.00 $8,332.50 $44,792.50 $24,997.50 $1,274,997.50 4 12/31/2015 $53,125.00 $8,332.50 $44,792.50 $16,665.00 $1,266,665.00 5 6/30/2016 $53,125.00 $8,332.50 $44,792.50 $8,332.50 $1,258,332.50 6 12/31/2016 $53,125.00 $8,332.50 $44,792.50 $0.00 $1,250,000.00 Totals $318,750.00 $49,995.00 $268,755.00 Date Account titles Debit Credit 30-Jun-14 Interest expense $45,499.82 Premium in issue of bonds $7,625.18 Cash $53,125.00 31-Dec-14 Interest expense $45,232.94 Premium in issue of bonds $7,892.06 Cash $53,125.00

Explanation / Answer

Journal entry to record the Bond Retirement on January 1'2015 is as shown below:

Premium amount is after deducting 2 instalments amortized on June 30 and December 31.

7.

If the market interest rate is incresed this means that the market is providing motre interest.In that case bond will be issued at a discount and the difference between Bond value and Bond Issue price will be treated as Unamortized discount and which will be amortized in the life of the bond by effective/straight line interest method.

General Journal Year Particulars L.F Debit ($) Credit ($) 2015 Jan-01 Bonds Payable 12,50,000 Premium on Bonds Payable 34,478 Loss on Retirement of bonds 40,522        Cash 1,250,000*106/100 13,25,000 (For Retired Bonds at $106 on January 1, 2015)

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.