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Data for the next 3 questions: Beauty Company issued $1,000,000, 4%, 10-year, bonds. Interest to be...

Data for the next 3 questions: Beauty Company issued $1,000,000, 4%, 10-year, bonds. Interest to be paid semiannually. The market rate on bonds issue date was 6%.

1. Provide the journal entry that must be made on issue date of the bonds

	Debit	Credit

2.Complete the following partial amortization schedule. Include only the final number for each cell

Schedule Title

pay#
0
1
2

3. Provide the necessary journal entry that company must make for the 2nd interest payment on the bond.

	Debit	credit

Data for the next 3 questions: Holly Company issued $2,000,000, 6%, 10-year, bonds. Interest to be paid semiannually. The market rate on bonds issue date was 5%.

4.Provide the journal entry that must be made on issue date of the bonds

	debit	credit

5.Complete the following partial amortization schedule. Include only the final number for each cell

Schedule Title:

pay#
0
1
2

6.Provide the necessary journal entry that company must make for the 2nd interest payment on the bonds.

	Debit	Credit

Expert Solution

Debit : Bank/Cash A/c Credit : Bond Payable $1,000,000

2.

Interest payment $1,000,000 x 4% x ½ year = $20,000
Number of periods 10 years x 2 = 20
Interest rate per period 6% / 2 = 3%
PV of face amount $1,000,000 x .554 = $ 554,000

PV of interest $20,000 x 14. 878= $297560

Total PV of Bonds = $297560+$ 554,000= $851560

This bond is being sold at discount. Discount = $1,000,000-$851560=$148440

This discount can be amortized into 20 semi annual period and accordingly $148440/20= $742.20 can be amortized on each semi annual period

3. Debit Interest on Bond Credit Bank /Cash Account - Amount $20,000

4. Debit : Bank/Cash A/c Credit : Bond Payable $2,000,000

5.

Interest payment $2,000,000 x 6% x ½ year = $60,000
Number of periods 10 years x 2 = 20
Interest rate per period 5% / 2 = 2.5%
PV of face amount $2,000,000 x .6102 = $ 1220541

PV of interest $60,000 x 15. 5891= $935350

Total PV of Bonds = $ 1220541+$935350= $2155891

This bond is being sold at premium . Premium = $2155891-$2,000,000=$155891

This premium can be amortized into 20 semi annual period and accordingly $155891/20= $7794.5 can be amortized on each semi annual period

6. Debit Interest on Bond Credit Bank /Cash Account - Amount $60,000

ekkarill92 answered 3 months ago

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