Question

On January 1, 2021, White Water issues $600,000 of 7% bonds, due in 10 years, with interest payable semiannually on June 30 and December 31 each year.

 

Required:

Assuming the market interest rate on the issue date is 6%, the bonds will issue at $644,632.

1. Complete the first three rows of an amortization schedule.

2. Record the bond issue on January 1, 2021, and the first two semiannual interest payments on June 30, 2021, and December 31, 2021.

 

 

Answer 1

1)
	Date	Cash	interest	Decrease	Carrying
		paid	expense	in CV	value
		3.50%	3%
	1/1/2021				644,632
	6/30/2021	21000	19339	1661	642971
	12/31/2021	21,000	19289	1711	641260
	6/30/2022	21,000	19238	1762	639498
	12/31/2022	21,000	19185	1815	637683
	6/30/2023	21,000	19130	1870	635813
	12/31/2023	21,000	19074	1926	633887
				10744
2)	Date	General Journal			Debit	Credit
	1/1/2021	Cash			644,632
		premium on bonds payable				44,632
		Bonds payable				600,000
	6/30/2021	interest expense			19339
		premium on bonds payable			1661
		Cash				21000
	12/31/2021	interest expense			19289
		premium on bonds payable			1711
		Cash				21,000

1)
	Date	Cash	interest	Decrease	Carrying
		paid	expense	in CV	value
		3.50%	3%