Exercise 14-9 (Part Level Submission) On June 30, 2017, Novak Company issued $3,
ID: 2546573 • Letter: E
Question
Exercise 14-9 (Part Level Submission)
On June 30, 2017, Novak Company issued $3,300,000 face value of 13%, 20-year bonds at $3,548,257, a yield of 12%. Novak uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and December 31.
(a)
Exercise 14-9 (Part Level Submission)
On June 30, 2017, Novak Company issued $3,300,000 face value of 13%, 20-year bonds at $3,548,257, a yield of 12%. Novak uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and December 31.
Explanation / Answer
Credit Cash paid Debit Interest expense booked Debit Premium amortised with every coupon Date No. Semi-annual coupon paymentsFV*6.5% Interest expenseEffective (mkt.)int(previous BV*6%) Premium amortised with every coupon Premium balance to be amortised Bal.in Bond Payable a/c Carrying value of bonds payable 1 2 3=7*6.5% 4=Prev.8*6% 5= (4-3) 6=Prev.6-5 7=FV 8=7+6 jun 30.2017 0 248257 3300000 3548257 Dec 31,2017 1 214500 212895 -1605 246652 3300000 3546652 Jun 30,2018 2 214500 212799 -1701 244952 3300000 3544952 Dec 31,2018 3 214500 212697 -1803 243149 3300000 3543149 Total 643500 638392 -5108 1.The issuance of the bonds on June 30, 2017. Cash 3548257 Bonds payable 3300000 Premium on bonds payable 248257 2.The payment of interest and the amortization of the premium on December 31, 2017. Interest expense(3548257*6%) 212895 Premium on bonds payable amortised (plug-in) 1605 Cash(3300000*13%/2) 214500 3.The payment of interest and the amortization of the premium on June 30, 2018. Interest expense((3548257-1605)*6%) 212799 Premium on bonds payable amortised (plug-in) 1701 Cash(3300000*13%/2) 214500 4.The payment of interest and the amortization of the premium on December 31, 2018 Interest expense((3548257-1605-1701)*6%) 212697 Premium on bonds payable amortised (plug-in) 1803 Cash(3300000*13%/2) 214500 b..Novak Company Balance Sheet(Partial) Liabilities& Equity Liabilities Long-term Liabilities 13%,20 Year bond Payable 3300000 Unamortised Premium on Bonds Payable 243149 Total Long-term Liabilities 3543149
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