Question

Mahalo Boat Adventure Inc. has a July 31 year-end. It showed the following partial amortization schedules regarding two bond issues:

Bond Issue A

Period Ending	(A) Cash Interest Paid $710,000 × 9.0% × 6/12					(B) Period Interest Expense (E) × 8.0% × 6/12					(C) Amort. (A) − (B)					(D) Unamortized Balance					(E) Carrying Value $710,000 + (D)
June 1/20																	$	44,941				$	754,941
Dec. 1/20		$	31,950				$	30,198				$	1,752					43,189					753,189
⋮⋮			⋮⋮					⋮⋮					⋮⋮					⋮⋮					⋮⋮
Dec. 1/26			31,950					29,144					2,806					15,806					725,806
June 1/27			31,950					29,032					2,918					12,888					722,888
Dec. 1/27			31,950					28,916					3,034					9,854					719,854
June 1/28			31,950					28,794					3,156					6,698					716,698
Dec. 1/28			31,950					28,668					3,282					3,416					713,416
June 1/29			31,950					28,534					3,416					0					710,000
Totals		$	575,100				$	530,159				$	44,941

*Adjusted for rounding

(For all requirements, do not round intermediate calculations. Round the final answers to the nearest whole dollar.)

Required:
1. Bond Issue A
a. Were the bond A issued at a premium and/or discount?

b. Journalize the issuance of bond A on June 1, 2020.

c. What is the contract interest rate for the issue bond A?
d. Interest of how much is paid how often for bond A issued?
e. What is the term of bond A issue?
f. Show how bond A would appear on the balance sheet under non-current liabilities at July 31, 2026. (Enter all amounts as positive values.)

g. Calculate the total bond A interest expense that would appear on the income statement for the year ended July 31, 2027.
h. Independent of (a) through (g), assume bond A issues were retired on December 1, 2027, at 97. Record the entries

Bond Issue B

Period Ending	(A) Cash Interest Paid $570,000.0 × 9.0% × 3/12					(B) Period Interest Expense (E) × 9.5% × 3/12					(C) Amort. (A) − (B)					(D) Unamortized Balance					(E) Carrying Value $570,000 − (D)
Apr. 1/18																	$	18,268				$	551,732
Jul. 1/18		$	12,825				$	13,104				$	279					17,989					552,011
⋮⋮			⋮⋮					⋮⋮					⋮⋮					⋮⋮					⋮⋮
Apr. 1/26			12,825					13,402					577					5,138					564,862
Jul. 1/26			12,825					13,415					590					4,548					565,452
Oct. 1/26			12,825					13,429					604					3,944					566,056
Jan. 1/27			12,825					13,444					619					3,325					566,675
Apr. 1/27			12,825					13,459					634					2,691					567,309
Jul. 1/27			12,825					13,474					649					2,042					567,958
Oct. 1/27			12,825					13,489					664					1,378					568,622
Jan. 1/28			12,825					13,505					680					698					569,302
Apr. 1/28			12,825					13,523	*				698					0					570,000
Totals		$	513,000				$	531,268				$	18,268

*Adjusted for rounding

2. Bond Issue B
a. Were the bond B issued at a premium and/or discount?

• Issued at discount

• Issued at premium

• Issued at premium & discount

b. Journalize the issuance of bond B on April 1, 2018.
c. What is the contract interest rate for the issue bond B?
d. Interest of how much is paid how often for bond B issued?
e. What is the term of bond B issue?

f. Show how bond B would appear on the balance sheet under non-current liabilities at July 31, 2026.

g. Calculate the bond B interest expense that would appear on the income statement for the year ended July 31, 2027.

h. Independent of (a) through (g), assume that bond B issues was retired on December 1, 2027, at 97. Record the entries.

Answer 1

Answer-1(a):

Bond A is issued at a premium.

Answer-1(b):

Answer-1(c):

Contract interest rate for the issue bond A is 9%

Answer-1(d):

Interest of $31,950 was paid semi-annually.

Answer-1(e):

Term of Bond A is 9 years.

Answer-1(f):

Explanation:

Answer-1(g):

Total bond A interest expense that would appear on the income statement for the year ended July 31, 2027.

= $29,032 + 28,916 = $57,948