On January 1, 2018, Bringham Company issues $600,000, 10-year, 6%, semi-annual bonds. On the issue date,...

On January 1, 2018, Bringham Company issues $600,000, 10-year, 6%, semi-annual bonds. On the issue date, the market rate is 8%.

REQUIRED:

1. Determine the amount of cash received from the Issuance of the Bond.

2. Prepare the Journal Entry to record the Issuance of the Bond

3. Prepare the Journal Entry for the first semi-annual Interest Payment AND Amortization of the Bond Discount or Premium using the Straight-Line Method of Amortization.

4. Prepare the Journal Entry for the second semi-annual Interest Payment AND Amortization of the Bond Discount or Premium using the Straight-Line Method of Amortization.

5. Prepare the Journal Entry for the first semi-annual Interest Payment AND Amortization of the Bond Discount or Premium using the Effective Interest Method of Amortization.

6. Prepare the Journal Entry for the second semi-annual Interest Payment AND Amortization of the Bond Discount or Premium using the Effective Interest Method of Amortization.

Solutions

Expert Solution

1       Amount of cash received from issuance of bond will be the present value of expencted cash flows.                                                                
        "Semi-annual 
Period" Description     "Amount
($)"    PV factor @ 8%  "Present
Value"                          
        1 to 20 Interest        18000   13.5903 244625.4                                
                        (600000*6%*1/2)                                         
        20th period     Principal       600000  0.4564  273840                          
                                        518465.4                                
        Discount=600000-518465=81535                                                            
        Amount of cash received=$518465                                                         
        Date    Account titles                  Debit   Credit                  
2       2018                                                            
        Jan 1.  Cash                    518465                          
                Discount on bonds payable                       81535                           
                Bond payable                            600000                  
                (Issuance of bonds)                                                     
3       June 30.        Interest expense                        13923                           
                Discount on bonds payable               (81535/20)              4077                    
                Cash    (600000*6%*1/2)                 18000                   
                (First semi-annual payment)                                                     
4       Dec 31. Interest expense                        13923                           
                Discount on bonds payable               (81535/20)              4077                    
                Cash    (600000*6%*1/2)                 18000                   
                (Second semi-annual payment)                                                    
5       June 30.        Interest expense (518465*8%*1/2)                        20739                           
                Discount on bonds payable                               2739                    
                Cash    (600000*6%*1/2)                 18000                   
                (First semi-annual payment)                                                     
6       Dec 31. Interest expense [(518465+2739)]*8%*1/2)                        20855                           
                Discount on bonds payable                               2855                    
                Cash    (600000*6%*1/2)                 18000                   
                (Second semi-annual payment)

ekkarill92 answered 1 year ago

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