Question

The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2022. The bonds yield 12%. Give entries through December 31, 2020.

Prepare all the relevant journal entries from March 1, 2019 until March 1, 2020. (The company closes its books on December 31).

Answer 1

Bonds price:

Bonds Present Value		500,000	0.705	352,500
Interest		25,000
Intereset Present Value6,6%		25,000	4.917	122,925
Bonds Price				475,425

Amortization table:

Dates	Cash Paid	Interest Expense	Amortization	Carrying Value
1/3/2019				475,425
1/9/2019	25,000	28,526	3,526	478,951
1/3/2020	25,000	28,737	3,737	482,688
1/9/2020	25,000	28,961	3,961	486,649
1/3/2021	25,000	29,199	4,199	490,848
1/9/2021	25,000	29,451	4,451	495,299
1/3/2022	25,000	29,718	4,718	500,016

Journal entries:

1/3/2019	Cash		475,425
		Bonds Payable		475,425
1/9/2019	Interest Expense		28,526
		Cash		25,000
		Bonds Payable		3,526
21/12/2019	Interest Expense		9,579
		Bonds Payable		2,491
		Interest Payable		16,667
1/3/2020	Intereset Expense		9,579
	Interest Payable		16,667
		Bonds Payable		1,246
		Cash		25,000

 

The table amortization helps us to record the journal entries easily.