Question

On September 1, 19X1, Golf Company sold and issued to Youngblood Company $60,000, 5-year, 9% coupon annual interest rate (payable semiannually) bonds for a price that would yield the market annual rate of interest of 8%. The bonds were dated July 1, 19X1, and interest is payable each June 30 and December 31. The accounting period for Golf ends on December 31.

Record the cash price at September 1, and the journal entries for issuance and the first 2 interest periods.

Answer 1

Answer 1.
Table Value Based on
n=	10	(5 Year X 2)
i=	4.00%	(8% /2)
Cash Flow	Amount	Present Value
Interest - $60,000 X 9% X 6/12	2,700	21,899
		($2,700 X 8.11090)
Principal	60,000.00	40,534
		($60,000 X 0.67556)
Issue Price of Bonds		62,433
Premium on issue of Bonds		2,433

Amortization Schedule
Effective Interest Method
	A	B	C	D	E
Semi-Annual Interest Period	Interest Paid - $60,000 X 9% X 6/12	Interest Expense - Preceeding Bond Carrying Value X 8% X 6/12	Premium Amortization (A - B)	Unamortized Premium (D - C)	Bond Carrying Amount ($60,000 + D)
7/1/20X1	-	-	-	2,433	62,433
12/31/20X1	2,700	2,497	203	2,230	62,230
6/30/20X2	2,700	2,489	211	2,020	62,020
12/31/20X2	2,700	2,481	219	1,800	61,800
6/30/20X3	2,700	2,472	228	1,572	61,572
12/31/20X3	2,700	2,463	237	1,335	61,335
6/30/20X4	2,700	2,453	247	1,089	61,089
12/31/20X4	2,700	2,444	256	832	60,832
6/30/20X5	2,700	2,433	267	565	60,565
12/31/20X5	2,700	2,423	277	288	60,288
6/30/20X6	2,700	2,412	288	(0)	60,000

Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt
9/1/20X1	Cash	63,333
	Bonds Payable		60,000
	Premium on issue of Bonds		2,433
	Interest Expense		900
	(record the issue of bonds)
12/31/20X1	Interest Expense	2,497
	Cash		2,700
	Premium on Issue of Bonds		203
	(record the interest paid)
6/30/20X2	Interest Expense	2,489
	Cash		2,700
	Premium on Issue of Bonds		211
	(record the interest paid)