need the 3rd question done 405029 | Homework Solutions
A company issued 10%, 5 year bonds with a par value of $2,000,000, on January 1, 2005. Interest is to be paid semiannually each June 30 and December 31. The bonds were sold at $2,162,290 to yield the buyers an 8% annual return. The company uses the effective interest method of amortization.
(1) Prepare the journal entry to record the issuance of the bonds.
Dr Cash 2,162.290
Cr Premium on Bonds Payable 162,290
Cr Bonds Payable 2,000,000
(2) Prepare an amortization table for the first two semiannual payment periods using the format shown below.
At issue date:
Unamortized Premium
162,290
Carrying Value
2,162,290
1st Payment
Cash Payment
100,000 (2,000,000 x 5% stated rate)
Interest Expense
86,492 (2,162,290 x 4% effective interest)
Premium Amortization
13,508 (100,000 86,492)
Unamortized Premium
148,782 (162,290 13,508)
Carrying Value
2,148,782 (2,162,290 13,508)
2nd Payment
Cash Payment
100,000 (2,000,000 x 5% stated rate)
Interest Expense
85,951 (2,148,782 x 4% effective interest)
Premium Amortization
14,049 (100,000 85,951)
Unamortized Premium
134,733 (148,782 14,049)
Carrying Value
2,134,733 (2,148,782 14,049)
****3.
Prepare the journal entries to record the first two semiannual interest payments.
