Spring 2018 Prof. Louis D\'Elia ADDITIONAL PROBLEMS-CHAPTER 14 Note: For all pro

Question

Spring 2018 Prof. Louis D'Elia ADDITIONAL PROBLEMS-CHAPTER 14 Note: For all problems, assume the fiscal year ends on December 31. Problem 1: The Sherwood Company issues $350,000 of 8% bonds on January 1, 20x1 The bonds pay interest on July 1 and January 1. The maturity date of the bonds is January 1,20x4. The bonds yield 10% fon Juty 1, 20x2 tafter payment of the semi- annual interest) Sherwood buys back $175,000 face value of bonds for $173,000. REQUIRED: 1) Using the effective interest method, construct a bond amortization schedule for the full term of the bond (January 1, 20x1 through January 1, 20x4). NOTE: Use EXCEL to calculate the issuance price of the bond and to prepare the amortization schedule.] 2) Prepare all journal entries from the time of issuance through July 1, 20x2.

Explanation / Answer

Price of the bond = c × F × (1 (1 + r)-t)/r+F(1 + r)t C=Interest Rate F= Face Value r=Market Interest Rate Price of Bond= Present value of Interest payments+Present value of the bond Price of Bond 14000*(1-(1.05)^-8)/.05)+350000/(1.05)^8 14000*(1-.74622)/.05)+350000*.74622 332235 Issue price 332235 Discount(350000-332235) 17765 Interest semiannualy 350000*4% 14000 ans 1 A B C D E F G Date Interest Payment @4% Bond Interest expenses at 5%*G Discount Amortization of Bond C-B Unamortized discount Credit balance in the Bond payable Carrying value of Bond F-E Credit cash Debit Interest Expense Bond Discount jan 1 20X1 17765 350000 332235 July 1 20X1 14000 16612 2612 15153 350000 334847 Jan 1 20X2 14000 16742 2742 12410 350000 337590 July 1 20X2 14000 16879 2879 9531 350000 340469 Jan 1 20X3 14000 17023 3023 6508 350000 343492 July 1 20X3 14000 17175 3175 3333 350000 346667 Jan 1 20X4 14000 17333 3333 0 350000 350000 ans 2 Accounts Titke Dr Cr Jan 1 20X1 Cash 332235 Discount on Bonds payable 17765 Bonds Payable 350000 July 1 20X1 Interest Expense 14000 Discount on Bonds payable 2612 Cash 16612 Jan 1 20X2 Interest Expense 14000 Discount on Bonds payable 2742 Cash 16742 July 1 20X2 Interest Expense 14000 Discount on Bonds payable 2879 Cash 16879 July 1 20X2 Bonds Payable 175000 Loss on Redemption of Bonds 2766 Discount on Bonds payable 4766 Cash 173000 working Discount on Bonds payable Unamortized portion 9531 For $175000 unamoertized portion 9531*175000/350000 4766

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