Question

On January 1, 2020, The Justice League issued $100,000, 9%, four-year bonds.  Interest is paid semiannually on June 30 and December 31.  The bonds were issued at $96,768 to yield an annual return of 10%.

Required:

1. Show how Justice League calculated the $96,768 bond price (round each to the whole dollar).

2. Prepare an amortization schedule for the dates indicated using the effective interest rate method.

Date	Cash Payment	Interest Expense	Amortization	Carry Value
1/1/2020
6/30/2020
12/31/2020
6/30/2021

3. Prepare the journal entries to record the issuance of the bond on January 1 and interest expense on June 30, 2020.         

Date	Account	DR	CR

3) What amount would the bonds be reported on the balance sheet at the end 2020?

Answer 1

Table values are based on:
Face Amount	$100,000
Interest Payment	$100,000*9%*6/12 =$4,500
Market Interest rate per period	5.00%
Cash Flow	Table Value(PV of 5% for 8 period)	Amount	Present Value
PV of Interest	6.46321	$4,500	$29,084
PV of Principal	0.67684	$1,00,000	$67,684
PV of Bonds Payable(Issue Price)			$96,768
Amortization Table-As per effective interest method
Date	Interest Payment($100,000*4.5%)	Interest expenses(Closing carrying amount*5%)	Discount amorrtization	Unamortized Discount	Closing carrying amount
Col I	Col II	Col III	Col IV(Col III - Col II)	Col V	Col VI
01-Jan-20				$                                 3,232	$                            96,768
30-Jun-20	$                                                                4,500	$                                                                     4,838	$                                     338	$                                 2,893	$                            97,107
31-Dec-20	$                                                                4,500	$                                                                     4,855	$                                     355	$                                 2,538	$                            97,462
30-Jun-21	$                                                                4,500	$                                                                     4,873	$                                     373	$                                 2,165	$                            97,835
31-Dec-21	$                                                                4,500	$                                                                     4,892	$                                     392	$                                 1,773	$                            98,227
30-Jun-22	$                                                                4,500	$                                                                     4,911	$                                     411	$                                 1,362	$                            98,638
31-Dec-22	$                                                                4,500	$                                                                     4,932	$                                     432	$                                    930	$                            99,070
30-Jun-23	$                                                                4,500	$                                                                     4,954	$                                     454	$                                    476	$                            99,524
31-Dec-23	$                                                                4,500	$                                                                     4,976	$                                     476	$                                      -0	$                         1,00,000
Date	Accounts and explanation	Debit(in $)	Credit(in $)
01-Jan-20	Cash	$                                                                   96,768
	Discount on Bonds Payable	$                                                                     3,232
	Bonds Payable		$                             1,00,000
30-Jun-20	Interest expenses	$                                                                     4,838
	Cash		$                                  4,500
	Discount on Bonds Payable		$                                     338
	JUSTICE LEAGUE
	Balance Sheet(Partial)
	At December 31,2020
	Long-Term Liabilities
	Bonds Payable	$1,00,000
	Unamortized Discount	$2,538
	Net Bonds payable as on December 31,2020		$97,462