In: Accounting
Serotta Corporation is planning to issue bonds with a face value of $410,000 and a coupon rate of 12 percent. The bonds mature in two years and pay interest quarterly every March 31, June 30, September 30, and December 31. All of the bonds were sold on January 1 of this year. Serotta uses the effective-interest amortization method and also uses a premium account. Assume an annual market rate of interest of 8 percent.
1.) Provide the journal entry to record the interest payment on March 31, June 30, September 30, and December 31 of this year. Round to the nearest whole dollar amount.
2.) What bonds payable amount will Serotta report on this year's December 31 balance sheet? (Round your final answers to nearest whole dollar amount.)
Maturity amount | $ 410,000 | ||||
Interest period | 8 | ||||
Market rate of interest | 2% | ||||
Quaterly interest paid | $ 12,300 | ||||
(410,000*12%*3/12) | |||||
Annuity factor for 8 periods | 7.3254 | ||||
PV factor for 8th period | 0.8534 | ||||
Present value of interest | $ 90,102.42 | ||||
Present value of maturity | $ 349,894 | ||||
Issue price | $ 439,996 | ||||
Amortization table | |||||
Date | Interset paid |
Interest Expense |
Premium Amortized |
Unamortized premium |
Carrying |
1-Jan-01 | $ 29,996 | $ 439,996 | |||
31-Mar-01 | $ 12,300 | $ 8,800 | $ 3,500 | $ 26,496 | $ 436,496 |
30-Jun-01 | $ 12,300 | $ 8,730 | $ 3,570 | $ 22,926 | $ 432,926 |
30-Sep-01 | $ 12,300 | $ 8,659 | $ 3,641 | $ 19,285 | $ 429,285 |
31-Dec-01 | $ 12,300 | $ 8,586 | $ 3,714 | $ 15,570 | $ 425,570 |
Journal entry | |||||
1-Jan | Cash account Dr | 439,996 | |||
Bond payable account | 410,000 | ||||
Premium on bond payable | 29,996 | ||||
31-Mar | Interst exp Dr | 8,800 | |||
Premium on bond payable | 3,500 | ||||
Cash account | 12,300 | ||||
30-Jun | Interst exp Dr | 8,730 | |||
Premium on bond payable | 3,570 | ||||
Cash account | 12,300 | ||||
30-Sep | Interst exp Dr | 8,659 | |||
Premium on bond payable | 3,641 | ||||
Cash account | 12,300 | ||||
31-Dec | Interst exp Dr | 8,586 | |||
Premium on bond payable | 3,714 | ||||
Cash account | 12,300 | ||||
Payable as on 31 Dec | $ 425,570 |