Question

On January 1, 2021, Blossom Co. issued ten-year bonds with a face value of $6,100,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are:

Present value of 1 for 10 periods at 10%		0.386
Present value of 1 for 10 periods at 12%		0.322
Present value of 1 for 20 periods at 5%		0.377
Present value of 1 for 20 periods at 6%		0.312
Present value of annuity for 10 periods at 10%		6.145
Present value of annuity for 10 periods at 12%		5.650
Present value of annuity for 20 periods at 5%		12.462
Present value of annuity for 20 periods at 6%		11.470

Calculate the issue price of the bonds.

Issue price of bond

Without prejudice to your solution in part (a), assume that the issue price was $5,392,400. Prepare the amortization table for 2021, assuming that amortization is recorded on interest payment dates using the effective-interest method.

Date	Cash	Expense	Amortization	Carrying Amount
1/1/21				$
6/30/21	$	$
12/31/21

Answer 1

First Part

Second Part:

5.00% 6.00% Present value of bond to be issued Bond Rate Market rate Face Value or Maturity Value Market Value Life 10.00% Semi-annual 12.00% Semi-annual 6,100,000 5,392,400 10 Semi-annual -707,600 20 Discount Amortisation Schedule A B D E IF G C Interest Expense (Market rate *previous book value in G Effective Interest rate method Cash Interest Payment (Coupon Rate*FV) Date Increase in Balance Amortisation of Bond Debit Balance in Bond Discount (C-B] Discount Account 707,600 18,544 689,056 19,657 669,399 Credit balance in bond payable account 6,100,000 6,100,000 6,100,000 1-Jan-21 30-Jun-21 31-Dec-21 Carrying of Bond 5,392,400 5,410,944 5,430,601 305,000 305,000 323,544 324,657 Journal Entry Debit Credit General Journal 1-Mar-07 Cash Discount on Bond Payable Bond Payable 5,392,400 707,600 6,100,000 323,544 30-Jun-21 Interest expense Discount on Bond Payable Interest Payable 18,544 305,000 324,657 31-Dec-21 Interest expense Discount on Bond Payable Cash 19,657 305,000