Additional Problem 1 On January 1, 2017, Sage Corporation purchased a newly issu

Question

Additional Problem 1

On January 1, 2017, Sage Corporation purchased a newly issued $1,475,000 bond. The bond matured on December 31, 2019, and paid interest at 6% every June 30 and December 31. The market interest rate is 8%. Sage’s fiscal year-end is October 31, and the company had the intention and ability to hold the bond until its maturity date.

Prepare the journal entries on the books of Sage Corporation for each of the following dates. (Round answers to 2 decimal places, e.g. 52.75. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Explanation / Answer

Issue Price: Present value of Interest payment for period 6 231962.9 ($44250*Annuity factor of period 6 at 4% i.e. 5.2421 Present value of maturity value 1165693 ($1475000*Present value factor i.e. 0.7903) Issue Price: 1397655 parvalue 1475000 Discount total 77345 Amortization table: Date Cassh interest Interest Discount Unamortized Book value expense Amortized Discount of bonds at end 30.06.2017 44250 55906 11656 65689 1409311 31.12.2017 44250 56372 12122 53567 1421433 30.06.2018 44250 56857 12607 40960 1434040 31.12.2018 44250 57362 13112 27848 1447152 30.06.2019 44250 57886 13636 14212 1460788 31.12.2019 44250 58462 14212 0 1475000 Journal entries: Jan 12017 Cash Account Dr. 1397655 Discount on bonds payable Dr. 77345      Bonds payable 1475000 30.06 Interest expense Dr. 55906       Cash account 44250       Discount on bond payable 11656 31.10.2017 Interest expense Dr 28186      Discount on bonds payable 6061      Interest payable 22125 31.12.2017 Interest expense Dr. 28186 Interest payable Dr. 22125       Cash Account 44250       Disc ount on bonds 6061 31.12.2019 Interest expense Dr. 58462       Cash account 44250       Discount on bond payable 14212 Bonds payable Dr. 1475000       Casah Account 1475000

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