Question

On June 30, 2017, Bramble Company issued $3,300,000 face value of 13%, 20-year bonds at $3,548,257, a yield of 12%. Bramble uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and December 31.

Prepare the journal entries to record the following transactions. (Round answer to 0 decimal places, e.g. 38,548. 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.)

(1) The issuance of the bonds on June 30, 2017.

(2) The payment of interest and the amortization of the premium on December 31, 2017.

(3) The payment of interest and the amortization of the premium on June 30, 2018.

(4) The payment of interest and the amortization of the premium on December 31, 2018.

(1) June 30, 2017

(2) December 31, 2017

(3) June 30, 2018

(4) December 31, 2018

Show the proper balance sheet presentation for the liability for bonds payable on the December 31, 2018, balance sheet.

Provide the answers to the following questions.

(1) What amount of interest expense is reported for 2018? (Round answer to 0 decimal places, e.g. 38,548.) Interest expense reported for 2018 $

(2) Will the bond interest expense reported in 2018 be the same as, greater than, or less than the amount that would be reported if the straight-line method of amortization were used? The bond interest expense reported in 2018 will be the amount that would be reported if the straight-line method of amortization were used.

(3) Determine the total cost of borrowing over the life of the bond. (Round answer to 0 decimal places, e.g. 38,548.) Total cost of borrowing over the life of the bond $

(4) Will the total bond interest expense for the life of the bond be greater than, the same as, or less than the total interest expense if the straight-line method of amortization were used? The total bond interest expense for the life of the bond will be the total interest expense if the straight-line method of amortization were used.

The total bond interest expense for the life of the bond will be ?

Answer 1

1. Issue of bonds on June 1, 2017
Date	Account Title	Debit	Credit
June1, 2017	Cash	3548257
	Bonds Payable		3300000
	Premium on bond issue		248257
2.Payment of interest and amortization oof Premium on Dec.31,2017
Date	Account Title	Debit	Credit
Dec.31,2017	Interest Expense	212895
	Premium on bond issue	1605
	Cash		214500
3.Payment of interest and amortization oof Premium on June.31,2018
Date	Account Title	Debit	Credit
June30, 2017	Interest Expense	212799
	Premium on bond issue	1701
	Cash		214500
4.Payment of interest and amortization oof Premium on Dec.31,2018
Date	Account Title	Debit	Credit
June1, 2017	Interest Expense	212697
	Premium on bond issue	1803
	Cash		214500

1. The interest expense reported in 2018 is $425,496.00

2. The bond expense reported in 2018 will be less than the amount that would be reported if the straight-line method of amortization were used.

3. The total cost of borrowing over the life of the bond = $8,580,000 ($214,500 x 40)

4. The total bond interest for the life of the bond will be $8,331,743.($8,580,000 - $248,257)

The amortization schedule is given below

A	B	C	D	E	F	G
Date	Interest	Interest	Amortization	Credit balance	Credit in	Book
	payment	Expense	of bond	in bonds	Bonds	Value of
			premium	premium a/c	Payable	the bonds
	6.5% of F	6% of G	C - B		A/c	F + E
6/1/2017				248257	3300000	3548257
12/1/2017	214500	212895	-1605	246652	3300000	3546652
6/1/2018	214500	212799	-1701	244952	3300000	3544952
12/1/2018	214500	212697	-1803	243149	3300000	3543149
6/1/2019	214500	212589	-1911	241238	3300000	3541238
12/1/2019	214500	212474	-2026	239212	3300000	3539212
6/1/2020	214500	212353	-2147	237065	3300000	3537065
12/1/2020	214500	212224	-2276	234788	3300000	3534788
6/1/2021	214500	212087	-2413	232376	3300000	3532376
12/1/2021	214500	211943	-2557	229818	3300000	3529818
6/1/2022	214500	211789	-2711	227107	3300000	3527107
12/1/2022	214500	211626	-2874	224234	3300000	3524234
6/1/2023	214500	211454	-3046	221188	3300000	3521188
12/1/2023	214500	211271	-3229	217959	3300000	3517959
6/1/2024	214500	211078	-3422	214537	3300000	3514537
12/1/2024	214500	210872	-3628	210909	3300000	3510909
6/1/2025	214500	210655	-3845	207063	3300000	3507063
12/1/2025	214500	210424	-4076	202987	3300000	3502987
6/1/2026	214500	210179	-4321	198666	3300000	3498666
12/1/2026	214500	209920	-4580	194086	3300000	3494086
6/1/2027	214500	209645	-4855	189232	3300000	3489232
12/1/2027	214500	209354	-5146	184085	3300000	3484085
6/1/2028	214500	209045	-5455	178631	3300000	3478631
12/1/2028	214500	208718	-5782	172848	3300000	3472848
6/1/2029	214500	208371	-6129	166719	3300000	3466719
12/1/2029	214500	208003	-6497	160223	3300000	3460223
6/1/2030	214500	207613	-6887	153336	3300000	3453336
12/1/2030	214500	207200	-7300	146036	3300000	3446036
6/1/20231	214500	206762	-7738	138298	3300000	3438298
12/1/2031	214500	206298	-8202	130096	3300000	3430096
6/1/2032	214500	205806	-8694	121402	3300000	3421402
12/1/2032	214500	205284	-9216	112186	3300000	3412186
6/1/2033	214500	204731	-9769	102417	3300000	3402417
12/1/2033	214500	204145	-10355	92062	3300000	3392062
6/1/2034	214500	203524	-10976	81086	3300000	3381086
12/1/2034	214500	202865	-11635	69451	3300000	3369451
6/1/2035	214500	202167	-12333	57118	3300000	3357118
12/1/2035	214500	201427	-13073	44045	3300000	3344045
6/1/2036	214500	200643	-13857	30188	3300000	3330188
12/1/2036	214500	199811	-14689	15499	3300000	3315499
6/1/2037	214500	198930	-15499	0	3300000	3300000