On January 1, 2018, Purellis Corporation issues 3-year $200,000 bonds at 97. The stated rate was...

On January 1, 2018, Purellis Corporation issues 3-year $200,000 bonds at 97. The stated rate was 10% and the effective rate was 12%. Interest is payable semiannually on June 30 and December 31.

Prepare an amortization schedule for the first two interest payments using the straight-line method

. Prepare the entry for the first interest payment. You MUST show all calculations. Round to the nearest whole dollar. Do not forget journal entry descriptions.

Solutions

Expert Solution

All working forms part of the answer
Workings

Date	Accounts title	Debit	Credit
01-Jan-18	Cash [200000 x 97/100]	$194,000
	Discount on Bonds Payable	$6,000
	Bonds Payable		$200,000
	(to record issuance of Bonds)

A	Total Discount	$6,000
B	No. of interest payments	6
C = A/B	Straight Line amortisation	$1,000

Requirement 1: Amortisation table

Period	Cash Payment	Interest Expense	Discount on Bonds Payable AMORTISED	Discount on Bonds Payable balance	Carrying Value
At Issue				$6,000	$194,000
30-Jun-18	$10,000	$11,000	$1,000	$5,000	$193,000
31-Dec-18	$10,000	$11,000	$1,000	$4,000	$192,000

Requirement 2: Interest payment journal entry

Date	Accounts title	Debit	Credit
30-Jun-18	Interest Expense	$11,000
	Discount on Bonds Payable		$1,000
	Cash [200000 x 10% x 6/12]		$10,000
	(first interest payment made)

ekkarill92 answered 1 month ago

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