Question

Problem 14-5 In each of the following independent cases, the company closes its books on December 31. Riverbed Co. sells $467,000 of 10% bonds on March 1, 2017. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2020. The bonds yield 12%. 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.) Schedule of Bond Discount Amortization Effective-Interest Method Bonds Sold to Yield Date Cash Paid Interest Expense Discount Amortized Carrying Amount of Bonds 3/1/17 $ $ $ $ 9/1/17 3/1/18 9/1/18 3/1/19 9/1/19 3/1/20 9/1/20 Prepare all of the relevant journal entries from the time of sale until the date indicated. (Assume that no reversing entries were made.) (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer 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.) Date Account Titles and Explanation Debit Credit 3/1/17 3/1/18 SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT LINK TO TEXT Marin Co. sells $413,000 of 12% bonds on June 1, 2017. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2021. The bonds yield 10%. On October 1, 2018, Marin buys back $128,030 worth of bonds for $134,030 (includes accrued interest). 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.) Schedule of Bond Discount Amortization Effective-Interest Method Bonds Sold to Yield Date Cash Paid Interest Expense Discount Amortized Carrying Amount of Bonds 6/1/17 $ $ $ $ 12/1/17 6/1/18 12/1/18 6/1/19 12/1/19 6/1/20 12/1/20 6/1/21 * Difference due to rounding Prepare all of the relevant journal entries from the time of sale until the date indicated. Give entries through December 1, 2019. (Assume that no reversing entries were made.) (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer 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.) Date Account Titles and Explanation Debit Credit 6/1/17 12/1/17 12/31/17 6/1/18 10/1/18 (To record interest expense and premium amortization) 10/1/18 (To record buy back of bonds) 12/1/18 12/31/18 6/1/19 12/1/19

Answer 1

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Basic details		Remarks
Coupon rate per Period	5.00%	10%/2
Face value of bond	467000
Market or Discounting rate per Period	6.00%	12%/2
Interest paid (467000*5%)	23350
Payment at end of period with Face value(467000+23350)	490350
Interest paid on	Semi annually
Interest on September 1 and March 1
Period of Bond	March 1, 2017 to Sep 1, 2020

	Present Value of bond
Date	Period	Payment	Discounting Factor @ 6%	Present Value
09-01-17	1	23350	0.943396	22028.30
03-01-18	2	23350	0.889996	20781.42
09-01-18	3	23350	0.839619	19605.11
03-01-19	4	23350	0.792094	18495.39
09-01-19	5	23350	0.747258	17448.48
03-01-20	6	23350	0.704961	16460.83
09-01-20	7	490350	0.665057	326110.76
	Present value of Bond			440930
	Less: face value of Bond			467000
	Discount on Bond payable			26070

Interest payment (Credit Cash) = Face value of bond * Coupon rate
Interest Expense (Debit Interest Expense) = book value of Bond for previuos period * Market or Discounting rate
Amortization of bond Discount (Credit Bond Discount) = Interest Expense - Interest payment
Debit Balance in Bond Discount = Debit Balance in Bond Discount for previous period - Amortization of bond Discount
Credit Balance in Bond Payable = Face value of bond
Book value of Bond = Credit Balance in Bond Payable - Debit Balance in Bond Discount
Bond Discount Amortization Table
Debit Balance in Bond Discount at end of retirement of bond payable must be Zero.
Period	Date	Interest payment	Interest Expense	Amortization of bond Discount	Debit Balance in Bond Discount	Credit Balance in Bond Payable	Book value of Bond
0					26070	467000	440930
1		23350	26456	3106	22964	467000	444036
2		23350	26642	3292	19672	467000	447328
3		23350	26840	3490	16182	467000	450818
4		23350	27049	3699	12483	467000	454517
5		23350	27271	3921	8562	467000	458438
6		23350	27506	4156	4406	467000	462594
7		23350	27756	4406	0	467000	467000

Date format is MM/DD/YY
Riverbed Co.
Journal entries
Date	Account title	Debit	Credit
03-01-17	Cash	440930
	Discount on Bond payable	26070
	Bond payable		467000
	(To record issued of bond payable at Discount.)
09-01-17	Interest expense	26456
	Discount on Bond payable		3106
	Cash		23350
	(To record interest expense and amortization of bond Discount.)
03-01-18	Interest expense	26642
	Discount on Bond payable		3292
	Cash		23350
	(To record interest expense and amortization of bond Discount.)
09-01-18	Interest expense	26840
	Discount on Bond payable		3490
	Cash		23350
	(To record interest expense and amortization of bond Discount.)
03-01-19	Interest expense	27049
	Discount on Bond payable		3699
	Cash		23350
	(To record interest expense and amortization of bond Discount.)
09-01-19	Interest expense	27271
	Discount on Bond payable		3921
	Cash		23350
	(To record interest expense and amortization of bond Discount.)
03-01-20	Interest expense	27506
	Discount on Bond payable		4156
	Cash		23350
	(To record interest expense and amortization of bond Discount.)
09-01-20	Interest expense	27756
	Discount on Bond payable		4406
	Cash		23350
	(To record interest expense and amortization of bond Discount.)
09-01-20	Bond payable	467000
	Cash		467000
	(To record Retirement of bond payable.)