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Silcon Company issued $500,000 of 6%, 10-year bonds on January 1, 2020 for $431,850 to yield...

Silcon Company issued $500,000 of 6%, 10-year bonds on January 1, 2020 for $431,850 to yield an effective annual rate of 8%. Interest is paid semiannually on January 1 and July 1. Instructions: (a) Prepare the journal entries to record the transactions for 2020 related to this bond issuance assuming the effective interest method of amortization is used. (b) Prepare the journal entries as of January 1, 2021 assuming the interest was paid and then the bond was redeemed at 101.

Solutions

Expert Solution

Silicon Company
Bond Par value $           500,000
Bond Issue Price $           431,850
Discount on Bond $             68,150
Semi annual Interest payment @3%=                 15,000
Semi annual Interest expense will be 4% on Carrying
value of Bond

Partial amortization schedule of Bond:

Period Opening Bond Liability Interest payment Interest expense @4% Bond discount amortized Balance of Bond Discount Carrying value of Bond Payable
Jan 1.2020 $              431,850 $                    -   $                   -   $                   -   $          68,150 $        431,850
Jul 1.2020. $              431,850 $            15,000 $          17,274 $            2,274 $          65,876 $        434,124
Jan 1.2021 $              434,124 $            15,000 $          17,365 $            2,365 $          63,511 $        436,489
Ans a.
Journal entries
Date Account Title Dr $ Cr $
01/01/2020. Cash               431,850
Bond Payable                500,000
Discount on Bond Payable                 68,150
7/1/2020 Cash                   15,000
Interest Expense                 17,274
Bond Discount Payable                     2,274

Ans b.

Ans b
after interest payment on Jan 1,2021, the
carrying value of Bond Payable =               436,489
Unamortized Bond discount                 63,511
Bond redeemed at 101=               505,000
Loss on Bond redemption                 68,511
Journal entries
Date Account Title Dr $ Cr $
01/01/2021. Bond Payable               500,000
Bond Discount Payable                   63,511
Cash                505,000
Loss on Bond Redemption                 68,511

ekkarill92 answered 1 year ago
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