Universal Autoparts Inc. issued $180,000 of 3%, 10-year bonds at a price of 91 o

Question

Universal Autoparts Inc. issued $180,000 of 3%, 10-year bonds at a price of 91 on January 31, 2017, The market interest rate at the date of issuance was 5%, and the standard bonds pay interest semi-annually. 1. Prepare an effective-interest amortization table for the bonds through the first three interest payments. 2. Record Universal's issuance of the bonds on January 31, 2017, and payment of the first semi-annual interest amount and amortization of the bonds on July 31, 2017. Explanations are not required. 1. Prepare an effective-interest amortization table for the bonds through the first three interest payments. (Round your answers to the nearest whole dollar.) Universal Autoparts Amortization Table Interest Expense (2.5% of Preceding Bond Carrying Amount) Bond Discount Amortization (B - A) Bond Discount Account Balance (PrecedingD-C) Bond Carrying Amount ($180,000 -D) Interest Payment (1.5% of Interest Date Maturity Value) Jan 31, 2017 July 31, 2017 Jan 31, 2018 July 31, 2018 2. Record Universal's issuance of the bonds on January 31, 2017, and payment of the first semi-annual interest amount and amortization of the bonds on July 31, 2017. (Record debits first, then credits. Explanations are not required.) Start by recording the issuance of bonds on January 31, 2017 Journal Entry 2017 Accounts Debit Credit Jan Now, record the payment of the first semi-annual interest amount and amortization of the bonds on July 31, 2017 Journal Entry 2017 Accounts Debit Credit July 31

Explanation / Answer

1) Semi-annual Interest Interest Bond Bond Bond interest rate Payment Expense Discount Discount Carrying 1.5% of MV 2.5% of Amortization Account Amount Carrying Balance amount 31-Jan-17 16200 163800 31-Jul-17 2700 4095 1395 14805 165195 31-Jan-18 2700 4130 1430 13375 166625 31-Jul-18 2700 4166 1466 11910 168090 2) 31-Jan-17 Cash 163800 Discount on bonds payable 16200 Bonds payable 180000 3) 31-Jul-17 Interest expense 4095 Discount on bonds payable 1395 Cash 2700

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