Sanford Co. sells $517,800 of 10% bonds on March 1, 2014. The bonds pay interest

Question

Sanford Co. sells $517,800 of 10% bonds on March 1, 2014. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2017. The bonds yield 12%.

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. (Round answers to 0 decimal places, e.g. 38,548.)

Schedule of Bond Discount Amortization
Effective-Interest Method
Bonds Sold to Yield

Date

Cash
Paid

Interest
Expense

Discount
Amortized

Carrying
Amount of
Bonds

* Difference due to rounding

Prepare all of the relevant journal entries from the time of sale until the date indicated. (Assume that no reversing entries were made.) (Round answers 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.)

Date

Account Titles and Explanation

Debit

Credit

3/1/14

9/1/14

12/31/14

3/1/15

9/1/15

12/31/15

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Schedule of Bond Discount Amortization
Effective-Interest Method
Bonds Sold to Yield

Date

Cash
Paid

Interest
Expense

Discount
Amortized

Carrying
Amount of
Bonds

3/1/14 $ $ $ $ 9/1/14 3/1/15 9/1/15 3/1/16 9/1/16 3/1/17 9/1/17 *

Explanation / Answer

Let the par value of th ebond be "x"

Semi-annual coupon payment = x*10%

= 0.1x

No of semi-annual periods = 7

..

Market value of the bond = Coupon AmountPVIFA(YTM,7) + Face Vale*PVIF(TYM,7)

517,800 = 0.1x*PVIFA(12%,7) + x*PVIF(12%,7)

517,800 = 0.1x*4.5638 + x*0.4523

0.90868x = 517,800

x = 570,000

..

..

Discount on Bond = 570,000 - 517,800

= $52,200

Amortisation per semi-annual period = 52,200/7

= $7457

..

..

Schedule of Bond Discount Amortization
Effective-Interest Method
Bonds Sold to Yield

..

Date Cash Paid Interest Expense Discount Amortised Carrying amount of the Bonds 3/1/14 517,800 9/1/14 57000 62,136 7,457 460,800 3/1/15 57000 55,296 7,457 403,800 9/1/15 57000 48,456 7,457 346,800 3/1/16 57000 41,616 7,457 289,800 9/1/16 57000 34,776 7,457 232,800 3/1/17 57000 27,936 7,457 175,800 9/1/17 627,000 21,096 7,458 NIL

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