Bond Retirement Problem #2 On January 1, 2015, Epson Co. issued 10-year bonds with a face...

Bond Retirement Problem #2

On January 1, 2015, Epson Co. issued 10-year bonds with a face value of $5,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%.

Calculate the issue price of the bond in dollars
Calculate the issue price of the bonds as a percentage
Make the journal entry to record the issuance of the bond on January 1, 2015
Prepare the amortization table for the years 2015, 2016 & 2017
Make the journal entries for 2017
How much was the interest expense for 2017?
On December 31, 2017 $400,000 of the bonds were retired at 95. Make the journal entry to record the retirement.

Solutions

Expert Solution

ans 1	Price of the bonds			in $
	Present value of interet payments	250000*PVIFA(4%,20)	250000*13.5903	3397582
	Present value of primcipal	5000000*PVIF(4%,20)	5000000*.4564	2281935
			Price of the bonds	5679516
	Interest payment (5000000*5%)	250000
	interest rates 8/2	4%
	time 10*2	20

	ans 2
	Issue price of bonds in %
	5679516/5000000*100	113.6	%

	ans 3		in $
Date	Accounts Title	Dr
Jan 1 2015	Cash	5679516
	Premium on Bonds payable		679516
	Bonds Payable		5000000

ans 4
Amortization table
Date	Interest payment I	Interst expenses E	Amortization I-E	Unamortized premium	Carrying value
Jan 1 2015				679516	5679516
June 30 2015	250000	227181	22819	656697	5656697
dec 31 2015	250000	226268	23732	632965	5632965
June 30 2016	250000	225319	24681	608283	5608283
dec 31 2016	250000	224331	25669	582615	5582615
June 30 2017	250000	223305	26695	555919	5555919
dec 31 2017	250000	222237	27763	528156	5528156


ans 5
Date	Accounts Title	Dr	Cr
June 30 2017	Interest expenses	223305
	Premium on Bonds payable	26695
	Cash		250000
	(being interest expenses recorded)
Dec 31 2017	Interest expenses	222237
	Premium on Bonds payable	27763
	Cash		250000

ans 6	Interest expenses for 2017
	223305+222237	445541

ans 7
Dec 31 2017	Bonds payable	$400000
	Premium on Bonds payable (528156/5000000*400000)	42252
	Cash (400000/100*95)		380000
	Gain on redemption of bonds		62252
	(redemption of bonds recorded)

	If any doubt please comment

ekkarill92 answered 1 year ago

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