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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 (413000*12%/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 2 years ago
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