Question

Oriole Co. sells $404,000 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, Oriole buys back $125,240 worth of bonds for $130,240 (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. (Round answers to 0 decimal places, e.g. 38,548.)

Schedule of Bond Discount Amortization

Effective-Interest Method

Bonds Sold to Yield

Date Cash Paid Interest Expense Discount Amortized Carrying Amount of Bonds

6/1/17 $ $ $ $

12/1/17

6/1/18

12/1/18

6/1/19

12/1/19

6/1/20

12/1/20

6/1/21

* Difference due to rounding

Prepare all of the relevant journal entries from the time of sale until the date indicated. Give entries through December 1, 2019. (Assume that no reversing entries were made.) (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

Solution :

Computation of bond price
Table values are based on:
n=	8
i=	5%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.67684	$404,000	$273,443
Interest (Annuity)	6.46321	$24,240	$156,668
Price of bonds			$430,112

Schedule of bond premium amortization
Date	Cash paid	Interest expense	Premium amortized	Carrying amount of bond
1-Jun-17				$430,112
1-Dec-17	$24,240	$21,506	$2,734	$427,378
1-Jun-18	$24,240	$21,369	$2,871	$424,506
1-Dec-18	$24,240	$21,225	$3,015	$421,492
1-Jun-19	$24,240	$21,075	$3,165	$418,326
1-Dec-19	$24,240	$20,916	$3,324	$415,003
1-Jun-20	$24,240	$20,750	$3,490	$411,513
1-Dec-20	$24,240	$20,576	$3,664	$407,848
1-Jun-21	$24,240	$20,392	$3,848	$404,000

Journal Entries
Date	Particulars	Debit	Credit
1-Jun-17	Cash Dr	$430,112.00
	To Bond Payable		$404,000.00
	To Premium on Bond Payable		$26,112.00
	(To record issue of bond)
1-Dec-17	Interest expense Dr	$21,506.00
	Premium on bond Payable Dr	$2,734.00
	To Cash		$24,240.00
	(To record interest payment and premium amortization)
1-Jun-18	Interest expense Dr	$21,369.00
	Premium on bond Payable Dr	$2,871.00
	To Cash		$24,240.00
	(To record interest payment and premium amortization)
1-Oct-18	Bond payable Dr	$125,240.00
	Interest expense Dr [($125,240 + $8,095 - $1,738) * 10%*3/12]	$3,290.00
	Premium on bond payable Dr ($20,506*125240/404000)	$6,357.00
	To Cash		$130,240.00
	To Gain in retirement of bond		$4,647.00
	(To record buy back of bond)
1-Dec-18	Interest expense Dr	$14,646.00
	Premium on bond Payable Dr	$2,080.00
	To Cash		$16,726.00
	(To record interest payment and premium amortization)
1-Jun-19	Interest expense Dr	$14,542.00
	Premium on bond Payable Dr	$2,184.00
	To Cash		$16,726.00
	(To record interest payment and premium amortization)
1-Dec-19	Interest expense Dr	$14,433.00
	Premium on bond Payable Dr	$2,293.00
	To Cash		$16,726.00
	(To record interest payment and premium amortization)