Martino Motor Corporation issued $200,000 of 10% bonds for 216,221 The bonds were dated April 1,...

Martino Motor Corporation issued $200,000 of 10% bonds for 216,221 The bonds were dated April 1, 2018, are due March 31, 2023 (5years), and pay interest semi-annually on September 30 and March 31. The market yield for bonds of similar risk and maturity was 8%. Bats fiscal year end is December 31.

1. Prepare a bond amortization schedule using the straight-line method

2. Prepare a bond amortization schedule using the effective interest method

3. Prepare the journal entries for (a) issuance of bonds and (b) first interest payment using the effective interest method.

Expert Solution

(1)- Bond amortization schedule using the straight-line method

Semiannual Period	Cash Interest Paid	Bond Interest Expense	Amortization of Premium	Unamortized Premium	Carrying Value

01/04/2018	-	-	-	16,221	2,16,221
30/09/2018	10,000	8,378	1,622	14,599	2,14,599
31/03/2019	10,000	8,378	1,622	12,977	2,12,977
30/09/2019	10,000	8,378	1,622	11,355	2,11,355
31/03/2020	10,000	8,378	1,622	9,733	2,09,733
30/09/2020	10,000	8,378	1,622	8,111	2,08,111
31/03/2021	10,000	8,378	1,622	6,488	2,06,488
30/09/2021	10,000	8,378	1,622	4,866	2,04,866
31/03/2022	10,000	8,378	1,622	3,244	2,03,244
30/09/2022	10,000	8,378	1,622	1,622	2,01,622
31/03/2023	10,000	8,378	1,622	-	2,00,000

	$100,000	$83,799	$16,221

(2)- Bond amortization schedule using the effective interest method

Semiannual Period	Cash Interest Paid	Bond Interest Expense	Amortization of Premium	Unamortized Premium	Carrying Value

01/04/2018	-	-	-	16,221	2,16,221
30/09/2018	10,000	8,649	1,351	14,599	2,14,870
31/03/2019	10,000	8,595	1,405	12,977	2,13,465
30/09/2019	10,000	8,539	1,461	11,355	2,12,003
31/03/2020	10,000	8,480	1,520	9,733	2,10,483
30/09/2020	10,000	8,419	1,581	8,111	2,08,903
31/03/2021	10,000	8,356	1,644	6,488	2,07,259
30/09/2021	10,000	8,290	1,710	4,866	2,05,549
31/03/2022	10,000	8,222	1,778	3,244	2,03,771
30/09/2022	10,000	8,151	1,849	1,622	2,01,922
31/03/2023	10,000	8,078	1,922	-	2,00,000

	$100,000	$83,799	$16,221

(3). Journal entries for (a) issuance of bonds and (b) first interest payment using the effective interest method

(a)-Entry to record the issuance of bond

Account Titles and Explanation	Debit ($)	Credit ($)

Cash A/c	216,221
To Bond Payable A/c		200,000
To Premium on Bond Payable A/c		16,221

Issue Price of Bond = $216,221

Face Value of Bond = $200,000

Premium on Bond Payable = $16,221 [$216,221 – 200,000]

(b)-Entry to record the first interest payment using the effective interest method.

Account Titles and Explanation	Debit ($)	Credit ($)

Interest Expenses A/c	8,649
Premium on Bond Payable A/c	1,351
To Cash A/c		10,000

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