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YaYa Company issued bonds with a contract interest rate of 10% and a face amount of...

YaYa Company issued bonds with a contract interest rate of 10% and a face amount of $200,000. The bonds mature in 15 years. The market interest rate for bonds with the same degree of riskiness is 8% compounded annually. These bonds were issued on January 1 of Year 1 at a price of $234,238. Cash Interest payments are made annually on December 31, so the first interest payment was made on December 31 of Year 1. YaYa uses the effective-interest method on its books.

What is the dollar amount of the bond premium or discount recorded on YaYa’s books after the cash payment of the last cash interest payment but before the payment of the face value of the bond? (Do not write the dollar sign).

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Expert Solution

Amortization Effective interest rate method
year      interest for semiannual period (200000 * 10%) Efffctive interest Amount ( 8% * Carrrying Amount of bond ) premium Amortization unamotized premium Bond carrying Amount
A B C      (A-B) D E
( Cash paid ) Debit(interest expense) Debit (premium on bonds) 34238 234238
1 20000 18739 1261 32977 232977
2 20000 18638 1362 31615 231615
3 20000 18529 1471 30144 230144
4 20000 18412 1588 28556 228556
5 20000 18284 1716 26840 226840
6 20000 18147 1853 24988 224988
7 20000 17999 2001 22987 222987
8 20000 17839 2161 20826 220826
9 20000 17666 2334 18492 218492
10 20000 17479 2521 15971 215971
11 20000 17278 2722 13249 213249
12 20000 17060 2940 10309 210309
13 20000 16825 3175 7133 207133
14 20000 16571 3429 3704 203704
15 20000 16296 3704 0 200000

After last Cash interest payment , balance  Amount of premium = $ 0 , at the time of making last cash interest premium Amortization = $ 3704

Journal Entries
Date Accounts Name Debit Credit
1 Bond Issue
year 1
1/1/2020 Cash 234238
      Premium on bonds 34238
     Bonds Payable 200000
12/31/2020 Interest Expense 18739
premium on bonds 1261
cash 20000
year -2
12/31/2020 Interest Expense 18638
premium on bonds 1362
cash 20000
year -15
Interest Expense 16296
premium on bonds 3704
cash 20000
bonds payable 200000
              Cash 200000

ekkarill92 answered 1 year ago
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