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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%.

  1. Calculate the issue price of the bond in dollars
  2. Calculate the issue price of the bonds as a percentage
  3. Make the journal entry to record the issuance of the bond on January 1, 2015
  4. Prepare the amortization table for the years 2015, 2016 & 2017
  5. Make the journal entries for 2017
  6. How much was the interest expense for 2017?
  7. 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 3 years ago
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