Question
In: Accounting
Bats Corporation issued $800,000 of 12% face value bonds for $851,705.70. The bonds were dated and...
Bats Corporation issued $800,000 of 12% face value bonds for $851,705.70. The bonds were dated and issued on April 1, 2016, are due March 31, 2020, and pay interest semiannually on September 30 and March 31. Bats sold the bonds to yield 10%.
Required:
| 1. | Prepare a bond interest expense and premium amortization schedule using the straight-line method. |
| 2. | Prepare a bond interest expense and premium amortization schedule using the effective interest method. |
| 3. | Prepare any adjusting entries for the end of the fiscal year, December 31, 2016, using the: |
| a. | straight-line method of amortization |
| b. | effective interest method of amortization |
| 4. | Assume the company retires the bonds on June 30, 2017, at 103 plus accrued interest. Prepare the journal entries to record the bond retirement using the: |
| a. | straight-line method of amortization |
| b. |
effective interest method of amortization |
Solutions
Expert Solution
| Part 1 | ||||||||
| Date | Interest Paid | Interest Expenses | Premium Amortization | Unamortized Premium | Bond Carrying Value | |||
| A | B | C | D | E | F | |||
| B-D | 551706/8 | E-D | 800000+E | |||||
| Sept 30, 2016 | 48000 | $41,537.00 | $6,463.00 | 45242 | 845242 | |||
| March 31, 2017 | 48000 | $41,537.00 | $6,463.00 | 38779 | 838779 | |||
| Sept 30, 2017 | 48000 | $41,537.00 | $6,463.00 | 32316 | 832316 | |||
| March 31, 2018 | 48000 | $41,537.00 | $6,463.00 | 25853 | 825853 | |||
| Sept 30, 2018 | 48000 | $41,537.00 | $6,463.00 | 19390 | 819390 | |||
| March 31, 2019 | 48000 | $41,537.00 | $6,463.00 | 12927 | 812927 | |||
| Sept 30, 2019 | 48000 | $41,537.00 | $6,463.00 | 6463 | 806463 | |||
| March 31, 2020 | 48000 | $41,537.00 | $6,463.00 | 0 | 800000 | |||
| Part 2 | ||||||||
| Date | Interest Paid | Interest Expenses | Premium Amortization | Debit Bal in bond premium account | Credit bal in bonds payable account | BV of Bonds | ||
| A | B | C | D | f+e | ||||
| 6% in Face Value | 5% of previous BV | C-B | ||||||
| 51706 | ||||||||
| Sept 30, 2016 | 48000 | $42,585.00 | $(5,415.00) | 46291 | 800000 | 846291 | ||
| March 31, 2017 | 48000 | $42,315.00 | $(5,685.00) | 40606 | 800000 | 840606 | ||
| Sept 30, 2017 | 48000 | $42,030.00 | $(5,970.00) | 34636 | 800000 | 834636 | ||
| March 31, 2018 | 48000 | $41,732.00 | $(6,268.00) | 28368 | 800000 | 828368 | ||
| Sept 30, 2018 | 48000 | $41,418.00 | $(6,582.00) | 21786 | 800000 | 821786 | ||
| March 31, 2019 | 48000 | $41,089.00 | $(6,911.00) | 14875 | 800000 | 814875 | ||
| Sept 30, 2019 | 48000 | $40,744.00 | $(7,256.00) | 7619 | 800000 | 807619 | ||
| March 31, 2020 | 48000 | $40,381.00 | $(7,619.00) | 0 | 800000 | 800000 | ||
| Part 3A | ||||||||
| Dec-31 | Interest Expenses | $20,769.00 | ||||||
| Premium on Bonds Payable | $3,232.00 | |||||||
| Interest Payable | $24,000.00 | |||||||
| (to record interest expenses due) | ||||||||
| Part 3B | ||||||||
| Dec-31 | Interest Expenses | $21,158.00 | ||||||
| Premium on Bonds Payable | $2,843.00 | |||||||
| Interest Payable | $24,000.00 | |||||||
| (to record interest expenses due) | ||||||||
| Part 4A | ||||||||
| Dec-31 | Bonds Payable | $8,00,000.00 | ||||||
| Premium on Bonds Payable | $3,232.00 | |||||||
| Loss on Amortization | $44,769.00 | |||||||
| Cash | $8,48,000.00 | |||||||
| (To record interest expenses due) | ||||||||
| Part 4B | ||||||||
| Dec-31 | Bonds Payable | $8,00,000.00 | ||||||
| Premium on Bonds Payable | $21,015.00 | |||||||
| Loss on Amortization | $26,985.00 | |||||||
| Cash | $8,48,000.00 | |||||||
| (To record interest expenses due) | ||||||||
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