Question

In: Accounting

On January 1, 2015, Rex Co. issued 10-year bonds with a face value of $5,000,000 and...

On January 1, 2015, Rex Co. issued 10-year bonds with a face value of $5,000,000 and a stated interest rate of 12%, payable semiannually on June 30 and December 31. The bonds were sold to yield 10%.

  • Prepare the amortization table for the years 2015, 2016 & 2017
  • Make the journal entries for 2017
  • How much was the interest expense for 2017?

Solutions

Expert Solution

1 Date Cash Payment Interest Expense Bond Premium
Amortization
Carrying Amount
of Bonds
Jan 1, 2015                5,623,113
June 30, 2015           300,000          281,156                 18,844                5,604,269
Dec 30, 2015           300,000          280,213                 19,787                5,584,482
June 30, 2016           300,000          279,224                 20,776                5,563,706
Dec 30, 2016           300,000          278,185                 21,815                5,541,891
June 30, 2017           300,000          277,095                 22,905                5,518,986
Dec 30, 2017           300,000          275,949                 24,051                5,494,935
Issue Price of Bonds
Face Value         1,884,450
(5,000,000 x 0.37689)
Interest Expense         3,738,663
(300,000 x 12.46221)
        5,623,113
2
Date Account Titles and Explanation Debit Credit
June 30, 2017 Interest Expense           277,095
Premium on Bonds Payable             22,905
Cash          300,000
Dec 31, 2017 Interest Expense           275,949
Premium on Bonds Payable             24,051
Cash          300,000
3                                                553,044

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