Question

On January 1, 2021, Crane Ltd. issued bonds with a maturity value of $6,600,000 when the market rate of interest was 4%. The bonds have a coupon (contractual) interest rate of 5% and mature on January 1, 2031. Interest on the bonds is payable semi-annually on July 1 and January 1 of each year. The company’s year end is December 31.

Click here to view the factor table. Present Value of 1
Click here to view the factor table. Present Value of an Annuity of 1

Calculate the issue price of the bonds. (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round final answer to 0 decimal places, e.g. 5,275.)

Issue Price

$

Prepare a bond amortization schedule from the date of issue up to and including January 1, 2023. (Round answers to 0 decimal places, e.g. 5,275.)

CRANE LTD. Bond Premium Amortization Table Effective Interest Method—Semi-Annual Interest Payments 5% Bonds Issued at market rate of 4%
Date		Interest Payment		Interest Expense		Premium Amortization		Bond Amortized Cost
Jan. 1, 2021		$		$		$		$
July 1, 2021
Jan. 1, 2022
July 1, 2022
Jan. 1, 2023

Prepare all of the required journal entries related to the bonds that Crane Ltd. will record during 2021, including any adjusting journal entries at December 31, 2021. (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1
	(To record issuance of bonds.)
July 1
	(To record interest payment.)
Dec. 31
	(To accrue interest expense.)

What amounts would be reported as current and non-current in the liabilities section of Crane Ltd.’s December 31, 2021, balance sheet? (Round answers to 0 decimal places, e.g. 5,275.)

CRANE LTD. Balance Sheet (Partial)                                                                       December 31, 2021For the Year Ended December 31, 2021For the Month Ended December 31, 2021
Property, Plant and EquipmentShareholders' EquityCurrent LiabilitiesNon-Current LiabilitiesCurrent Assets
		$
Current LiabilitiesCurrent AssetsShareholders' EquityProperty, Plant and EquipmentNon-Current Liabilities

Record the payment of interest on January 1, 2022. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1
	(To record interest payment.)

The bonds were redeemed on January 1, 2023 (after the interest had been paid and recorded) at 102. Prepare the journal entry for the redemption of the bonds. (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1
	(To record redemption of bonds.)

Assume instead that the bonds were not redeemed on January 1, 2023. Record the entry for the repayment of the bonds on January 1, 2031. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1
	(To record maturity of bond.)

  

What will be the total interest payment over the 10-year life of the bonds? What will be the total interest expense over the 10-year life of the bonds? (Round answers to 0 decimal places, e.g. 5,275.)

Interest Payment		$
Interest Expense		$

Answer 1

a) Issue Price:
half year interest * PVIFA(Mr/2,n*2) + Par value * PVIF(Mr/2,n*2)
(6600000*2.5%)* PVIFA(2%,20) + 6600000 * PVIF(2%, 20)
(6600000*2.5%)* 16.3514 + 6600000 * 0.673
7139781
Premium amount = 7139781-6600000 = 539781
b) Amortisation Schedule:
Date	interest payment	Interest exp.	Premium Amorti	Bond Amortised cost $
Jan 1 2021				7139781
July 1 2021	165000	142796	22204	7117577
Jan 1 2022	165000	142352	22648	7094928
July 1 2022	165000	141899	23101	7071827
jan 1 2023	165000	141437	23563	7048263
c) Journal entries:
Date	Acc Titles	Dr. $	Cr. $
Jan 1 21	Cash	7139781
	Bond payable		6600000
	Premium on bond payable		539781
	(to record issuance of bonds)
1-Jul	Interest exp.	142796
	Premium on bond payable	22204
	Cash		165000
	(to record interest payment)
31-Dec	Interest exp.	142352
	Premium on bond payable	22648
	Interest payable		165000
	(to accrue interest payment)
d) presentation in Crana ltd's Balance Sheet:
Liabilities:
Current Liabilities:
Interest payable	165000
Long term Liabilities:
Bonds payable	6600000
add:Premium on Bonds payable	494928
	7094928
e)
Date	Acc Titles	Dr. $	Cr. $
Jan 1 2022	Interest payable	165000
	Cash		165000
	(to record interest payment)
f) redeemption entry on jan 1 2023:
Jan 1 2023	Bonds payable	6600000
	Premium on bond payable	448263
	Gain on redeemption of bonds		316263
	Cash		6732000	(6600000*1.02)
	(entry of redemption)
g) to record at maturity:
Jan 1 2031	Bonds payable	6600000
	Cash		6600000
	(maturity payment)