ACC207 Principles 2 Chapter 10 Homework Problem 2 Bond 7 Name Control Combos Inc

Question

ACC207 Principles 2 Chapter 10 Homework Problem 2 Bond 7 Name Control Combos Inc. issued $1,000,000 in 20 year bonds at 95. 1. How much money did Conrol Combos receive from the 2. Is this issued at a premium or a discount? 4. What is the annual straight line amortization of the Problem 2 On January 1, 20X1, Trowell Corporation issued S700.000, 8%, 8-year bonds at 104. The bonds pay semi-annual interest on June 30 and December 31. The uses the straight-line method of amortization and has a calendar year end. company Instructions Prepare all journal entries made to issue the bonds on January 1, 2017 and pays interest on June 30, 2017 and Decmber 31, 2017. Complete the amortization schedule for the first 5 years. Answer 1-Jan-17 30-Jun-17 31-Dec-17

Explanation / Answer

Answer to Problem 1:

Face Value = $1,000,000
Time to Maturity = 20 years

Proceed from Issue of Bonds = 95%of Par Value
Proceed from Issue of Bonds = 95% * $1,000,000
Proceed from Issue of Bonds = $950,000

Bonds are issued at premium

Discount on Bonds = Face Value - Proceed from Issue of Bonds
Discount on Bonds = $1,000,000 - $950,000
Discount on Bonds = $50,000

Annual Amortization of Discount = Discount on Bonds / Time to maturity
Annual Amortization of Discount = $50,000 / 20
Annual Amortization of Discount = $2,500

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