Question

a. Sweet Co. sells $360,000 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, Sweet buys back $118,800 worth of bonds for $124,800 (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.)

b. 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.)

Answer 1

Calculate cash proceeds on issuance:
Maturity value of bonds payable = FV	$360,000
Interest Rate semiannual =Rate = 10%/2	5.00%
N = 4 years x 2	8
PMT = $360,000 x 12%/2	$21,600
Type	0
Present Value = PV(5%,8,-$21600,-360000,0)	$383,267.57
Present Value of Bonds	$383,267.57
Less: Bonds Payable	-$360,000
Premium on Bonds Payable	$23,267.57
Schedule of Bond Discount Amortization
Effective-Interest Method
12% Bonds Sold to Yield 10%
Date	Cash Paid	Interest Expense = Carrying Amount x 5%	Premiumt Amortized = Cash paid - Int. exp.	Carrying Amount of Bonds = Previous bal - Premium amortized
Jun.1 2017				$383,267.57
Dec. 1 2017	$21,600	$19,163.38	$2,436.62	$380,830.94
Jun.1 2018	$21,600	$19,041.55	$2,558.45	$378,272.49
Dec. 1 2018	$21,600	$18,913.62	$2,686.38	$375,586.12
Jun.1 2019	$21,600	$18,779.31	$2,820.69	$372,765.42
Dec. 1 2019	$21,600	$18,638.27	$2,961.73	$369,803.69
Jun.1 2020	$21,600	$18,490.18	$3,109.82	$366,693.88
Dec. 1 2020	$21,600	$18,334.69	$3,265.31	$363,428.57
Jun.1 2021	$21,600	$18,171.43	$3,428.57	$360,000
b)
Journal Entries
Date	Account Titles and Explananation	Debit	Credit
June 1,2017	Cash	$383,267.57
	Bonds Payable		$383,267.57
Dec 1 ,2017	Interest Expense	$19,163.38
	Bonds Payable	$2,436.62
	Cash		$21,600
Dec 31,2017	Interest Expense ($19,041.55 x 1/6)	$3,173.59
	Bonds Payable ($2558.45 x1/6)	$426.41
	Interest Payable ($21,600 x 1/6)		$3,600
June 1,2018	Interest Expense ($19,041.55 x 5/6)	$15,867.96
	Bonds Payable ($2558.45 x5/6)	$2,132.04
	Interest Payable ($21,600 x 1/6)	$3,600
	Cash		$21,600
Oct 1 2018	Interest Expense (18,913.62 x 4/6 x 33%)	$4,161
	Bonds Payable (2686.38 x 4/6 x 33%)	$591
	Cash		$4,752
	*$118,800 ÷ $360,000 = .33	33.00%
Oct 1 2018	Bonds Payable (378,272 x 33%) - $591	$124,238.92
	Gain on Extinguishment of Bonds		$4,190.92
	Cash ($124,800 – ($118,800 X 12% X 4/12)		$120,048.00
Dec 1,2018	Interest Expense (18,913.62 x (1-33%)	$12,672.13
	Bonds Payable (2686.38 x (1-33%)	$1,799.87
	Cash ($21,600 x (1-33%)		$14,472
Dec 31,2018	Interest Expense ($18,779.31 x 1/6 x .67)	$2,097.02
	Bonds Payable ($2820.69 x1/6 x .67)	$314.98
	Interest Payable ($21,600 x 1/6 x.67)		$2,412
June 1,2019	Interest Expense ($18,779.31 x 5/6 x .67	$10,485.11
	Bonds Payable ($2820.69 x5/6 x .67	$1,574.89
	Interest Payable ($21,600 x 1/6 x .67	$2,412
	Cash		$14,472
Dec 1,2019	Interest Expense (18,638.27 x (1-33%)	$12,487.64
	Bonds Payable (2961.73 x (1-33%)	$1,984.36
	Cash ($21,600 x (1-33%)		$14,472