ume that on December 31, 20ND, Arizona woolers sued S100 meton of 14 yo\" 8%dete
ID: 2513108 • Letter: U
Question
ume that on December 31, 20ND, Arizona woolers sued S100 meton of 14 yo" 8%detenues proceeds wee S118,764,000,therefore, the market rate of neres, was 0% Read the equiemen Now prepare the journal entry for (e) the payment of maturity vae Debit e) Bonds payabe 100,000 sirement 3. Stow how the brd-reated heve been recorded unts wold appear on Anzona woolens' baar ce sheets as of December 3,200, and tro 30, 20?1. Assurne rath" sermanna-reros!parne" and anotn December 31, 20X0Jue30, 20x1 Bonds payable 00,000,000 1.204 920 on bonde payable Net lablity Requirement 4. Calculate the interest expense for the 6-month period ending December 31, 20X1 (Round your answer to the nearest thousand) The interest expense for the 6-month period ending December 31, 201 amounts toExplanation / Answer
To solve reqirement 3 and 4 we need to prepare the Amortization Table for Amortization of Bond Premium.
It is assumed that the company is using market interest rate to amortize the permium.
Amortization Table—
Schedule of Amortization of Bond PREMIUM (Effective Rate Method)
Payment intervals
Date
Cash Paid (Face Value of the Bonds $100,000,000 x Coupon Rate 8%* 1/2 half yearly)
Interest Expense (Carrying Value at the beginning of period x Market Interest Rate 6% * 1/2 Half Yearly)
Premium Amortized (Cash Paid - Interest Expense)
Premium on Bonds Payable (Unamortized Portion B/S)
Par Value of Bonds Payable
Carrying Value of the bonds at the end of period (Par Value + Balance of Unamortized Bond Premium)
0
Dec.31, 20X0
$18,764,000
$100,000,000
$118,764,000
1
June.30, 20X1
$4,000,000
$3,562,920
$437,080
$18,326,920
$100,000,000
$118,326,920
2
Dec.31, 20X1
$4,000,000
$3,549,808
$450,192
$17,876,728
$100,000,000
$117,876,728
Note – Issue price of the bonds are not clear in the question. It is taken as $118,764,000 --- If it is not the same, pls let me know I will provide you the correct answer.
Requirement 3--
Dec.31, 20X0
Dec.31, 20X1
Bonds Payable
$100,000,000
$100,000,000
Premium on Bonds Payable
$18,764,000
$18,326,920
Net Liability
$118,764,000
$118,326,920
Requirement 4 –
Interest Expense for the 6 month period ending Dec 31, 20X1 = $3,549,808
Refer amortization table..
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Schedule of Amortization of Bond PREMIUM (Effective Rate Method)
Payment intervals
Date
Cash Paid (Face Value of the Bonds $100,000,000 x Coupon Rate 8%* 1/2 half yearly)
Interest Expense (Carrying Value at the beginning of period x Market Interest Rate 6% * 1/2 Half Yearly)
Premium Amortized (Cash Paid - Interest Expense)
Premium on Bonds Payable (Unamortized Portion B/S)
Par Value of Bonds Payable
Carrying Value of the bonds at the end of period (Par Value + Balance of Unamortized Bond Premium)
0
Dec.31, 20X0
$18,764,000
$100,000,000
$118,764,000
1
June.30, 20X1
$4,000,000
$3,562,920
$437,080
$18,326,920
$100,000,000
$118,326,920
2
Dec.31, 20X1
$4,000,000
$3,549,808
$450,192
$17,876,728
$100,000,000
$117,876,728
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