Question

Taylor Company issued $100,000 of 13% bonds on January 1, 2016. The bonds pay interest semiannually on June 30 and December 31 and are due December 31, 2018.

Required:

1.	Assume the company sells the bonds for $102,458.71 to yield 12%. Prepare the journal entries to record the sale of the bonds and each 2016 semiannual interest payment and premium amortization, using the effective interest method.
2.	Assume the company sells the bonds for $97,616.71 to yield 14%. Prepare the journal entries to record the sale of the bonds and each 2016 semiannual interest payment and discount amortization, using the effective interest method.

Answer 1

Answer 1.
Premium Amortization Schedule
Date	Interest Paid - $100,000 X 13% X 6/12	Interest Expense - Preceeding Bond Carrying Value X 12% X 6/12	Premium Amortization	Unamortized Premium	Bonds Carrying Amount
	A	B	C = A - B	D = D - C	E = $100,000 + D
1-Jan-16	-	-	-	2,458.71	102,458.71
30-Jun-16	6,500.00	6,147.52	352.48	2,106.23	102,106.23
31-Dec-16	6,500.00	6,126.37	373.63	1,732.61	101,732.61
30-Jun-17	6,500.00	6,103.96	396.04	1,336.56	101,336.56
31-Dec-17	6,500.00	6,080.19	419.81	916.76	100,916.76
30-Jun-18	6,500.00	6,055.01	444.99	471.76	100,471.76
31-Dec-18	6,500.00	6,028.24	471.76	(0.00)	100,000.00

Answer.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
Year 1
1-Jan-16	Cash	102,458.71
	Bonds Payable		100,000.00
	Premium on Issue of Bond		2,458.71
	(Record the issue of Bond)
30-Jun-16	Interest Expense	6,147.52
	Premium on Issue of Bond	352.48
	Cash		6,500.00
	(record the interest paid)
31-Dec-16	Interest Expense	6,126.37
	Premium on Issue of Bond	373.63
	Cash		6,500.00
	(record the interest paid)

Answer 2
Discount Amortization Schedule
Date	Interest Paid - $100,000 X 13% X 6/12	Interest Expense - Preceeding Bond Carrying Value X 14% X 6/12	Discount Amortization	Unamortized Discount	Bonds Carrying Amount
	A	B	C = B - A	D = D - C	E = $100,000 - D
1-Jan-16	-	-	-	2,383.29	97,616.71
30-Jun-16	6,500.00	6,833.17	333.17	2,050.12	97,949.88
31-Dec-16	6,500.00	6,856.49	356.49	1,693.63	98,306.37
30-Jun-17	6,500.00	6,881.45	381.45	1,312.18	98,687.82
31-Dec-17	6,500.00	6,908.15	408.15	904.04	99,095.96
30-Jun-18	6,500.00	6,936.72	436.72	467.32	99,532.68
31-Dec-18	6,500.00	6,967.32	467.32	0.00	100,000.00

Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
Year 1
1-Jan-16	Cash	97,616.71
	Discount on Issue of Bond	2,383.29
	Bonds Payable		100,000.00
	(Record the issue of Bond)
30-Jun-16	Interest Expense	6,833.17
	Cash		6,500.00
	Discount on Issue of Bond		333.17
	(record the interest paid)
31-Dec-16	Interest Expense	6,856.49
	Cash		6,500.00
	Discount on Issue of Bond		356.49
	(record the interest paid)