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On January 1, 2017, Bonita Company purchased $260,000, 6% bonds of Aguirre Co. for $238,911. The...

On January 1, 2017, Bonita Company purchased $260,000, 6% bonds of Aguirre Co. for $238,911. The bonds were purchased to yield 8% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2022. Bonita Company uses the effective-interest method to amortize discount or premium. On January 1, 2019, Bonita Company sold the bonds for $240,370 after receiving interest to meet its liquidity needs.

Prepare the amortization schedule for the bonds.

Solutions

Expert Solution

Date Cash Received Interest Revenue Bond Discount Amortization Bond Carrying Amount
1/1/17 238911
7/1/17 7800 9556.44 1756.44 240667.44
1/1/18 7800 9626.70 1826.70 242494.14
7/1/18 7800 9699.77 1899.77 244393.91
1/1/19 7800 9775.76 1975.76 246369.67
7/1/19 7800 9854.79 2054.79 248424.46
1/1/20 7800 9936.98 2136.98 250561.44
7/1/20 7800 10022.46 2222.46 252783.90
1/1/21 7800 10111.36 2311.36 255095.26
7/1/21 7800 10203.81 2403.81 257499.07
1/1/22 7800 10300.93 2500.93 260000.00
Total 78000 99089 21089

Cash received = $260000 x 6% x 6/12 = $7800

Interest revenue = Bond carrying value x 8% x 6/12

Bond discount amortization = Interest revenue - Cash received

Bond carrying value = Bond carrying value (previous) + Bond discount amortization

Kindly round off as required since no specific instructions have been provided with the question regarding rounding off.

ekkarill92 answered 1 year ago
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