Question

On January 1, 2021, Cullumber Ltd. issued bonds with a maturity value of $8,900,000 when the market rate of interest was 4%. The bonds have a coupon (contractual) interest rate of 5% and mature on January 1, 2031. Interest on the bonds is payable semi-annually on July 1 and January 1 of each year. The company’s year end is December 31.

Prepare a bond amortization schedule from the date of issue up to and including January 1, 2023. (Round answers to 0 decimal places, e.g. 5,275.)

CULLUMBER LTD. Bond Premium Amortization Table Effective Interest Method—Semi-Annual Interest Payments 5% Bonds Issued at market rate of 4%
Date		Interest Payment		Interest Expense		Premium Amortization		Bond Amortized Cost
Jan. 1, 2021		$		$		$		$
July 1, 2021
Jan. 1, 2022
July 1, 2022
Jan. 1, 2023

Prepare all of the required journal entries related to the bonds that Cullumber Ltd. will record during 2021, including any adjusting journal entries at December 31, 2021. (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1
	(To record issuance of bonds.)
July 1
	(To record interest payment.)
Dec. 31
	(To accrue interest expense.)

Incorrect answer iconYour answer is incorrect.

What amounts would be reported as current and non-current in the liabilities section of Cullumber Ltd.’s December 31, 2021, balance sheet? (Round answers to 0 decimal places, e.g. 5,275.)

CULLUMBER LTD. Balance Sheet (Partial)                                                                       For the Year Ended December 31, 2021For the Month Ended December 31, 2021December 31, 2021
Current LiabilitiesNon-Current LiabilitiesCurrent AssetsShareholders' EquityProperty, Plant and Equipment
		$
Current LiabilitiesProperty, Plant and EquipmentShareholders' EquityCurrent AssetsNon-Current Liabilities

Record the payment of interest on January 1, 2022. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1
	(To record interest payment.)

The bonds were redeemed on January 1, 2023 (after the interest had been paid and recorded) at 102. Prepare the journal entry for the redemption of the bonds. (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1
	(To record redemption of bonds.)

Assume instead that the bonds were not redeemed on January 1, 2023. Record the entry for the repayment of the bonds on January 1, 2031. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1

Answer 1

n = 20
I = 2%
cashflows			Amount	PVF	Present Values
Semi annual cash interest	222500	16.35143	3638193.2
Maturity value		8900000	0.672971	5989441.9
Price of bonds				9627635.1
Amort Chart
Date	Int. Paid	Int. expense	premium	Bond amortized
			amortized	cost
01.01.21				9627635
01.07.21	222500	192553	29947	9597688
01.01.22	222500	191954	30546	9567141
01.07.22	222500	191343	31157	9535984
01.01.23	222500	190720	31780	9504204
Journal entries
S.no.	Accounts title and explanations		Debit $	Credit $
01.01.21	Cash				9627635
	Bonds payable				8900000
	Premium on bonds payable			727635
	(for issuance of bonds)
01.07.21	Interest expense			192553
	Premium on bonds payable		29,947
	Cash					2,22,500
	(for interest paid)
31.12.21	Interest expense			191954
	Premium on bonds payable		30546
	Interest payable				222500
	(for interest due)
Balance Sheet on Dec31, 021
Current liability:
Interest payable			222500
Non-Current liability
Bonds payable		8900000
Add: Premium unamortized	667141	9567141
Journal entries
S.no.	Accounts title and explanations		Debit $	Credit $
01.01.22	Interest payable			222500
	Cash					222500
	(for interest due)
01.01.23	Bonds payable			8900000
	Premium on bonds payable		604204
	Cash (8900000*102%)			9078000
	Gain on redemption of bonds			426204
	(for redemption of bonds)
01.01.31	Bonds payable			8900000
	Cash					8900000
	(for bonds redeemed on maturity)