Sheffield Corp. issued $6,498,000 of 8% bonds on October 1, 2020, due on October 1, 2025....

Sheffield Corp. issued $6,498,000 of 8% bonds on October 1, 2020, due on October 1, 2025. The interest is to be paid twice a year on April 1 and October 1. The bonds were sold to yield 9% effective annual interest. Sheffield Corp. closes its books annually on December 31. Complete the following amortization schedule for the dates indicated. Use the effective-interest method. (Round answers to 0 decimal places, e.g. 5,275.)

Date Cash Interest Expense Bond Discount Carrying Amount of Bonds October 1, 2020 $

April 1, 2021

October 1, 2021

SHOW LIST OF ACCOUNTS

Prepare the adjusting entry for December 31, 2021. Use the effective-interest method. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Dec. 31 SHOW LIST OF ACCOUNTS

Compute the interest expense to be reported in the income statement for the year ended December 31, 2021. Interest expense $

Expert Solution

1-
price of bond	(coupon paymentPVAF at 4.5% for 10 semiannual period)+(face valuePVF at 4.5% at 10th semiannual period)	(2599207.91281)+(64980000.6439)	6240889.735
coupon payment	6498000*4%		259920
Face value			6498000
PVAF at 4.5% for 10 semiannual period	1-(1+r)^-n / r r=4.5% n = 10	1-(1.045)^-10 / 4.5%	.356072/4.5%	7.912818
PVF at 4.5% at 10 th semiannual period	1/(1+r)^n	1/(1.045)^10		0.6439277
2-A
Amortization schdeule - effective interest method
Period	cash paid - face valuecoupon rate1/2 coupon rate =125	Interest expense = carrying value of bondsmarket rate of interest1/2 market rate of interest	Discount amortized = Interest expense-cash paid as Interest	balance in discount to be amortized	carrying vaue of bond = beginning balance-discount to be amortized	Face value
Oct 1 2020				257110.3	6240890	6498000
April 1 2021	259920	280840.0381	20920.03808	236190.2	6261810	6498000
Oct 1 2021	259920	281781.4398	21861.4398	214328.8	6283671	6498000
April 1 2022	259920	282765.2046	22845.20459	191483.6	6306516	6498000
Oct 1 2022	259920	283793.2388	23873.2388	167610.3	6330390	6498000
April 1 2023	259920	284867.5345	24947.53454	142662.8	6355337	6498000
Oct 1 2023	259920	285990.1736	26070.1736	116592.6	6381407	6498000
April 1 2024	259920	287163.3314	27243.33141	89349.3	6408651	6498000
Oct 1 2024	259920	288389.2813	28469.28132	60880.02	6437120	6498000
April 1 2025	259920	289670.399	29750.39898	31129.62	6466870	6498000
Oct 1 2025	259920	291009.1669	31129.62369	0	6498000	6498000

Journal Entries
date	explanation	debit	credit
dec 31 2020	Interest expense	140420
	discount on bonds payable		10460.01904	140420
	Interest payable		129960

April 1 2021	Interest expense	140420.019
	Interest payable	129960
	discount on bonds payable		10460.01904
	cash		259920

oct 1 2021	Interest expense	281781.4398
	discount on bonds payable		21861.4398
	cash		259920

Dec 31 2021	Interest expense	141382.6023
	discount on bonds payable		11422.60229
	Interest payable		129960

Interest expense to be reported into income statement in 2021	140420.019+281781.4398+141382.6023		563584

ekkarill92 answered 2 years ago

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