Question

Application Problem 10-5A a, c-d (Part Level Submission) Sawada Insurance Ltd. issues bonds with a face value of $100 million that mature in 12 years. The bonds carry a 6.3% interest rate and are sold at 106.96 to yield 5.5%. They pay interest semi-annually. Show the journal entries to record the first two interest payments on these bonds. Ignore year-end accruals of interest. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 125.)

Answer 1

The first step is to prepare an amortization schedule for the first two half years
HALF YEAR	INTEREST EXPENSE	INTEREST PAID	AMORTIZATION OF DISCOUNT	CARRYING VALUE
Beginning of 1st Half Year				$ 10,69,60,000
End of 1st Half Year	$       29,41,400	$ 31,50,000	$           2,08,600	$ 10,67,51,400
end of 2ns Half Year	$       29,35,664	$ 31,50,000	$           2,14,337	$ 10,65,37,064
JOURNAL ENTRIES
1st Half:
Interest expense	$       29,41,400
Premium on bonds payable	$         2,08,600
Cash		$ 31,50,000
2nd Half:
Interest expense	$       29,35,664
Premium on bonds payable	$         2,14,337
Cash		$ 31,50,000