Question

Problem 1 (18 pts.)

Skinner Corporation issued $500,000 of 7% bonds for $486,500 to yield a market rate of 8%.

1. Prepare the journal entry to record the sale of the bonds.

2. Prepare the journal entry for the first semiannual interest payment.

3. Prepare the journal entry for the second semiannual interest payment.

Problem 2 (18 pts.)

Smith Corporation issued $200,000 of 9%, 4-year bonds for 206,733 to yield a market rate of 8%. A partially completed amortization table is presented below.

INTEREST PERIOD	INTEREST EXPENSE				END OF PERIOD CARRYING VALUE
				6,733	206,733
1	8,269	9,000	731	6,002	206,002
2	8,240	9,000	760	5,242	205,242
3	8,210	9,000	790	4,452	204,452
4	8,178	9,000	822	3,630	203,630
5	8,145	9,000	855	2,775	202,775
6
7
8

REQUIREMENTS:

1. Fill in the missing column headings in the table.
2. Complete the last three lines of the table (interest periods 6, 7, & 8)

Answer 1

Journal entry in the Books of Skinner Corp as per Effective Interest method
Date	Account title and explanation	Debit(in $)	Credit(in $)
Issue date	Cash	$                         486,500
	Disount on Bond payable	$                           13,500
	Bonds Payable		$                          500,000
	(to bond issued at discount)
1st Semiannual Interest Period	Interest expense($486,500*4%)	$                           19,460
	Cash($500,000*3.5%)		$                            17,500
	Disount on Bond payable		$                              1,960
	(to record entry for 1st semiannual interest payment)
2nd Semiannual Interest Period	Interest expense($488,460*4%)	$                           19,538
	Cash($500,000*3.5%)		$                            17,500
	Disount on Bond payable		$                              2,038
	(to record entry for 2nd semiannual interest payment)
Interest Period	Interest expense	Interest paid in cash	Discount Amortized	Unamortized Discount	End of Period Carrying Value
				$                                  6,733	$                               206,733
1	$                                                                            8,269	$                             9,000	$                                 731	$                                  6,002	$                               206,002
2	$                                                                            8,240	$                             9,000	$                                 760	$                                  5,242	$                               205,242
3	$                                                                            8,210	$                             9,000	$                                 790	$                                  4,452	$                               204,452
4	$                                                                            8,178	$                             9,000	$                                 822	$                                  3,630	$                               203,630
5	$                                                                            8,145	$                             9,000	$                                 855	$                                  2,775	$                               202,775
6	$                                                                            8,111	$                             9,000	$                                 889	$                                  1,886	$                               201,886
7	$                                                                            8,075	$                             9,000	$                                 925	$                                     961	$                               200,961
8	$                                                                            8,039	$                             9,000	$                                 961	$                                        -	$                               200,000