Question

chapter 14 - long term liabilities
LandMark Co. sells $440,000 of 12% bonds on June 1, 2020. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2024. The bonds yield 8%. On October 1, 2021, landmark buys back $140,800 worth of bonds for $147,800 (includes accrued interest). Give entries through December 1, 2022.

Prepare a bond amortization schedule using the effective-interest method for discount and premium amortization. Amortize premium or discount on interest dates and at year-end. (Round answers to 0 decimal places, e.g. 38,548.)

Prepare all of the relevant journal entries from the time of sale until December 31, 2022. (Assume that no reversing entries were made.) (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

Interest	$26,400 * 6.73274 (see note 1)	$177,744
Principal	$440,000 * 0.73069 (see note 2)	$321,504
Present value of bonds	Total	$499,248

Note 1:
Interest calculation = $440,000 * 12% * (6/12) = $26,400

Present value of an ordinary annuity of $1: n = 8, i = 4% (PVA of $1) = 6.73274

Note 2:

Present value of $1: n = 8, i = 4% (PV of $1) = 0.73069

Calculation of issue price and discount

Maturity value of bonds payable	$440,000
Proceeds from sale of bonds*	$499,248
Premium	$59,248

Amortization schedule

Date	Paid	Interest	Premium	Value
Jun 1, 20				$499,248
Dec 1, 20	$26,400	$19,970	$6,430	$492,818
Jun 1, 21	$26,400	$19,713	$6,687	$486,131
Dec 1, 21	$26,400	$19,445	$6,955	$479,176
Jun 1, 22	$26,400	$19,167	$7,233	$471,943
Dec 1, 22	$26,400	$18,878	$7,522	$464,421
Jun 1, 23	$26,400	$18,577	$7,823	$456,598
Dec 1, 23	$26,400	$18,264	$8,136	$448,462
Jun 1, 24	$26,400	$17,938	$8,462	$440,000

Journal entries:

Date	Account	Debit	Credit
Jun 1, 20	Cash	$499,248
	Premium on Bonds payable		$59,248
	Bonds payable		$440,000
Dec 1, 20	Interest Expense	$19,970
	Premium on Bonds Payable	$6,430
	Cash [$440,000 * 12% * (6/12)]		$26,400
Dec 31 ,20	Interest Expense	$3,285
	Premium on Bonds Payable ($6,687 * 1/6)	$1,115
	Interest Payable [$440,000 * 12% * (1/6)]		$4,400
Jun 1, 21	Interest Expense ($19,713 - $3,285)	$16,428
	Interest Payable	$5,150
	Premium on Bonds Payable ($6,687 * 5/6)	$5,572
	Cash [$440,000 * 12% * (6/12)]		$27,150
Oct 1 ,21	Interest Expense [$19,445 * 0.32 * (4/6)]	$4,148
	Premium on Bonds Payable [$6,955 * 0.32 * (4/6)]	$1,484
	Cash		$5,632
Oct 1 ,21	Bonds Payable	$140,800
	Premium on Bonds Payable [$46,131 * 0.32 - $1,484)	$13,278
	Gain on Redemption of Bonds Payable		$11,910
	Cash ($147,800 - $5,632)		$142,168
Dec 1, 21	Interest Expense ($19,445 * 0.68)	$13,223
	Premium On Bonds Payable ($6,955 * 0.68)	$4,729
	Interest Payable		$17,952
Dec 31, 21	Interest Expense [$19,167 * 0.68 * (1/6)]	$2,172
	Premium On Bonds Payable [$7,233 * 0.68 * (1/6)]	$820
	Interest Payable[ 543,000 x 10 % x (4/12)]		$2,992
Jun 1, 22	Interest Expense [$19,167 * 0.68 * (5/6)]	$10,861
	Interest Payable [$299,200 * 12% * (1/12)]	$2,992
	Premium on Bonds Payable [$7,233 * 0.68 * (5/6)]	$4,099
	Cash		$17,952
Dec 1, 22	Interest Expense ($18,878 * 0.68)	$12,837
	Premium on Bonds Payable ($7,522 * 0.68)	$5,115
	Cash		$17,952