Question

On 10/1/2016, Hamilton Corporation issued $1 million of 13.5% bonds for $985,071.68. The bonds are due in 4 years, and pay interest semiannually on March 31 and September 30. Assume an effective yield rate of 14%. Use the spreadsheet found in the link at the bottom to prepare a bond interest expense and discount amortization schedule using the straight-line method. Use the attached spreadsheet to prepare a bond interest expense and discount amortization schedule using the effective interest method. Prepare any adjusting entries for the end of the fiscal year December 31, 2016, using the: straight-line method of amortization effective interest method of amortization Assume the company retired the bonds on June 30, 2017, at 98 plus accrued interest. Prepare the journal entries to record the bond retirement using the: straight-line method of amortization effective interest method of amortization

Answer 1

Answer 1.
Amortization Schedule
Effective Interest Method
	A	B	C	D	E
Semi-Annual Interest Period	Interest Payment - $1,000,000 X 13.50% X 6/12	Interest Expense - Preceeding Bond Carrying Value X 14% X 6/12	Discount Amortization (B - A)	Unamortized Discount (D - C)	Bond Carrying Amount ($1,000,000 - D)
01/10/2016	-	-	-	14,928.32	985,071.68
31/03/2017	67,500.00	68,955.02	1,455.02	13,473.30	986,526.70
30/09/2017	67,500.00	69,056.87	1,556.87	11,916.43	988,083.57
01/04/2018	67,500.00	69,165.85	1,665.85	10,250.58	989,749.42
30/09/2018	67,500.00	69,282.46	1,782.46	8,468.12	991,531.88
01/04/2019	67,500.00	69,407.23	1,907.23	6,560.89	993,439.11
30/09/2019	67,500.00	69,540.74	2,040.74	4,520.16	995,479.84
01/04/2020	67,500.00	69,683.59	2,183.59	2,336.57	997,663.43
30/09/2020	67,500.00	69,836.57	2,336.57	(0.00)	1,000,000.00
Amortization Schedule
Straight Line Method
	A	B	C	D	E
Semi-Annual Interest Period	Interest Payment - $1,000,000 X 13.50% X 6/12	Interest Expense -      B = A + C	Discount Amortization	Unamortized Discount (D - C)	Bond Carrying Amount ($1,000,000 - D)
01/10/2016	-	-	-	14,928.32	985,071.68
31/03/2017	67,500.00	69,366.04	1,866.04	13,062.28	986,937.72
30/09/2017	67,500.00	69,366.04	1,866.04	11,196.24	988,803.76
01/04/2018	67,500.00	69,366.04	1,866.04	9,330.20	990,669.80
30/09/2018	67,500.00	69,366.04	1,866.04	7,464.16	992,535.84
01/04/2019	67,500.00	69,366.04	1,866.04	5,598.12	994,401.88
30/09/2019	67,500.00	69,366.04	1,866.04	3,732.08	996,267.92
01/04/2020	67,500.00	69,366.04	1,866.04	1,866.04	998,133.96
30/09/2020	67,500.00	69,366.04	1,866.04	-	1,000,000.00

Answer 2.
Journal Entry
Date	Particualrs	Dr. Amt	Cr. Amt
	Amortization of Discount - Effective Interest Method
31/12/2016	Interest Exp.	34,477.51
	Discount on Issue of Bonds		727.51
	Interest Payable		33,750.00
	(Record the interest paybable)
	Amortization of Discount - Straight Line Method
31/12/2016	Interest Exp.                                                Dr.	34,683.02
	Discount on Issue of Bonds		933.02
	Interest Payable		33,750.00
	(Record the interest paybable)
Answer 3.
	Amortization of Discount - Straight Line Method
30-Jun-17	Interest Exp.                                                Dr.	34,683.02
	Discount on Issue of Bonds		933.02
	Cash		33,750.00
	(Record the interest paid)
30-Jun-17	Cash	980,000.00
	Discount on Redemption of Bonds	20,000.00
	Bonds Payable		986,004.70
	Discount on issue of Bonds		13,995.30
	(record the redemtion of bonds)