Sheffield Co. sells $413,000 of 12% bonds on June 1, 2017. The bonds pay interest on...

Sheffield Co. sells $413,000 of 12% bonds on June 1, 2017. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2021. The bonds yield 10%. On October 1, 2018, Sheffield buys back $128,030 worth of bonds for $134,030 (includes accrued interest).

Prepare a bond amortization schedule using the effective-interest method for discount and premium amortization. Amortize premium or discount on interest dates and at year-end

Solutions

Expert Solution

Proceeds from sale of bonds

Present value of 413000 (413000*0.67684)	279535
Present value of (41300012%/2 6.46321)	160158
Proceeds from sale of bonds	439693

Premium on bonds = 439693-413000 = 26693

Date	cash paid	interest expense	premium amortized	carrying Value of bonds
6/1/2017				439693
12/1/2017	24780 (413000*6%)	21985 (439693*5%)	2795 (24780-21985)	436898 (439693-2795)
6/1/2018	24780	21845 (436898*5%)	2935 (24780-21845)	433963 (436898-2935)
12/1/2018	24780	21698 (433963*5%)	3082 (24780-21968)	430881 (433963-3082)
6/1/2019	24780	21544 (430881*5%)	3236 (24780-21544)	427645 (430881-3236)
12/1/2019	24780	21382 (427645*5%)	3398 (24780-21382)	424247 (427645-3398)
6/1/2020	24780	21212 (424247*5%)	3568 (24780-21212)	420679 (424247-3568)
12/1/2020	24780	21034 (420679*5%)	3746 (24780-21034)	416933 (420679-3746)
6/1/2021	24780	20847 (24780-3933)	3933 (416933-413000)	413000
Total	198240	171547	26693	0

ekkarill92 answered 1 year ago

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