Question

On February 1, 2019, Ellison Co. issued nine-year callable bonds with a face value of $250,000,000 and a stated interest rate of 8.5%, payable semiannually on July 1 and January 1. The bonds were sold to yield 8%. Table values are:

a. Calculate the issue price of the bonds.

b. Record the issuance on February 1, 2019.

c. Prepare the journal entries for the interest expense and payments for 2019, 2020, 2021, 2022 and 2023. (you will need to prepare amortization schedule)

d. Assume all of the bonds are called on January 1, 2024 at 102.  Prepare the journal entry to record the call.

Answer 1

a)
Face Value	$                            250,000,000.00
Semiannual Coupon Rate (8.50%/2)	4.25%
Semiannual coupon Payment	$                              10,625,000.00
Rate = 8%/2	4%
Period (9*2)	18
Current Price= PV(4%,18,-10625000,-250000000)	$257,912,060.61
b)	Debit	Credit
Cash	$                            257,912,060.61
Premium on bonds Payable		$            7,912,060.61
Bonds Payable		$        250,000,000.00
c)	Effective interest amortization table
	A	B	C	D	E
Semiannual Interest Period-End	Cash Interest Paid [4.25% x $250,000,000]	Bond Interest Expense [4% x Prior (E)]	Premium Amortization[(B) - (A)]	Unamortized Discount [Prior (D) - (C)]	Carrying Value [$250,000,000 + (D)]
1/2/19				$                   7,912,061	$                               257,912,061
7/1/19	$                                   10,625,000	$               10,316,482	$                             (308,518)	$                   7,603,543	$                               257,603,543
1/1/20	$                                   10,625,000	$               10,304,142	$                             (320,858)	$                   7,282,685	$                               257,282,685
7/1/20	$                                   10,625,000	$               10,291,307	$                             (333,693)	$                   6,948,992	$                               256,948,992
1/1/21	$                                   10,625,000	$               10,277,960	$                             (347,040)	$                   6,601,952	$                               256,601,952
7/1/21	$                                   10,625,000	$               10,264,078	$                             (360,922)	$                   6,241,030	$                               256,241,030
1/1/22	$                                   10,625,000	$               10,249,641	$                             (375,359)	$                   5,865,671	$                               255,865,671
7/1/22	$                                   10,625,000	$               10,234,627	$                             (390,373)	$                   5,475,298	$                               255,475,298
1/1/23	$                                   10,625,000	$               10,219,012	$                             (405,988)	$                   5,069,310	$                               255,069,310
7/1/23	$                                   10,625,000	$               10,202,772	$                             (422,228)	$                   4,647,082	$                               254,647,082
1/1/24	$                                   10,625,000	$               10,185,883	$                             (439,117)	$                   4,207,966	$                               254,207,966
7/1/24	$                                   10,625,000	$               10,168,319	$                             (456,681)	$                   3,751,284	$                               253,751,284
1/1/25	$                                   10,625,000	$               10,150,051	$                             (474,949)	$                   3,276,336	$                               253,276,336
7/1/25	$                                   10,625,000	$               10,131,053	$                             (493,947)	$                   2,782,389	$                               252,782,389
1/1/26	$                                   10,625,000	$               10,111,296	$                             (513,704)	$                   2,268,685	$                               252,268,685
7/1/26	$                                   10,625,000	$               10,090,747	$                             (534,253)	$                   1,734,432	$                               251,734,432
1/1/27	$                                   10,625,000	$               10,069,377	$                             (555,623)	$                   1,178,809	$                               251,178,809
7/1/27	$                                   10,625,000	$               10,047,152	$                             (577,848)	$                      600,962	$                               250,600,962
1/1/28	$                                   10,625,000	$               10,024,038	$                             (600,962)	$                                 0	$                               250,000,000
c)	Account Titles	Debit	Credit
7/1/19	Interest Expenses	$               10,316,482
	Premium on Bonds Payable	$                    308,518
	Cash		$                          10,625,000
1/1/20	Interest Expenses	$               10,304,142
	Premium on Bonds Payable	$                    320,858
	Cash		$                          10,625,000
7/1/20	Interest Expenses	$               10,291,307
	Premium on Bonds Payable	$                    333,693
	Cash		$                          10,625,000
1/1/21	Interest Expenses	$               10,277,960
	Premium on Bonds Payable	$                    347,040
	Cash		$                          10,625,000
7/1/21	Interest Expenses	$               10,264,078
	Premium on Bonds Payable	$                    360,922
	Cash		$                          10,625,000
1/1/22	Interest Expenses	$               10,249,641
	Premium on Bonds Payable	$                    375,359
	Cash		$                          10,625,000
7/1/22	Interest Expenses	$               10,234,627
	Premium on Bonds Payable	$                    390,373
	Cash		$                          10,625,000
1/1/23	Interest Expenses	$               10,219,012
	Premium on Bonds Payable	$                    405,988
	Cash		$                          10,625,000
7/1/23	Interest Expenses	$               10,202,772
	Premium on Bonds Payable	$                    422,228
	Cash		$                          10,625,000
1/1/24	Interest Expenses	$               10,185,883
	Premium on Bonds Payable	$                    439,117
	Cash		$                          10,625,000
d)
1/1/24	Bonds Payable	$             250,000,000
	Premium on Bonds Payable	$                 4,207,966
	Loss on Redemption of Bonds	$                    792,034
	Cash		$                   255,000,000.00