Question
In: Accounting
On February 1, 2019, Ellison Co. issued 10 year callable bonds with a face value of...
On February 1, 2019, Ellison Co. issued 10 year callable bonds with a face value of $200,000,000and a stated interest rate of 6.6%, payable semiannually on July 1 and January 1. The bonds were sold to yield 6%.
a. Calculate the issue price of the bonds.
b. Record the issuance on February 1, 2019.
c. Prepare the journal entries for the interest expense and payments for 2019, 2020, 2021, 2022 and 2023. (you will need to prepare amortization schedule)
d. Assume all of the bonds are called on January 1, 2024 at 102. Prepare the journal entry to record the call.
Solutions
Expert Solution
| a) | |||||
| Face Value | $20,00,00,000.00 | ||||
| Semiannual Coupon Rate | 3.30% | ||||
| Semiannual coupon Payment | $66,00,000.00 | ||||
| Rate | 3% | ||||
| Period | 20 | ||||
| Current Price | $20,89,26,484.92 | ||||
| b) | Debit | Credit | |||
| Cash | $20,89,26,484.92 | ||||
| Premium on bonds Payable | $89,26,484.92 | ||||
| Bonds Payable | $20,00,00,000.00 | ||||
| c) | Effective interest amortization table | ||||
| A | B | C | D | E | |
| Semiannual Interest Period-End | Cash Interest Paid [3.3% x $200,000,000] | Bond Interest Expense [3% x Prior (E)] | Premium Amortization[(B) - (A)] | Unamortized Premium[Prior (D) - (C)] | Carrying Value [$200,000,000 + (D)] |
| 02-01-2019 | $89,26,485 | $20,89,26,485 | |||
| 01-07-2019 | $66,00,000 | $62,67,795 | $(3,32,205) | $85,94,279 | $20,85,94,279 |
| 01-01-2020 | $66,00,000 | $62,57,828 | $(3,42,172) | $82,52,108 | $20,82,52,108 |
| 01-07-2020 | $66,00,000 | $62,47,563 | $(3,52,437) | $78,99,671 | $20,78,99,671 |
| 01-01-2021 | $66,00,000 | $62,36,990 | $(3,63,010) | $75,36,661 | $20,75,36,661 |
| 01-07-2021 | $66,00,000 | $62,26,100 | $(3,73,900) | $71,62,761 | $20,71,62,761 |
| 01-01-2022 | $66,00,000 | $62,14,883 | $(3,85,117) | $67,77,644 | $20,67,77,644 |
| 01-07-2022 | $66,00,000 | $62,03,329 | $(3,96,671) | $63,80,973 | $20,63,80,973 |
| 01-01-2023 | $66,00,000 | $61,91,429 | $(4,08,571) | $59,72,402 | $20,59,72,402 |
| 01-07-2023 | $66,00,000 | $61,79,172 | $(4,20,828) | $55,51,574 | $20,55,51,574 |
| 01-01-2024 | $66,00,000 | $61,66,547 | $(4,33,453) | $51,18,122 | $20,51,18,122 |
| 01-07-2024 | $66,00,000 | $61,53,544 | $(4,46,456) | $46,71,665 | $20,46,71,665 |
| 01-01-2025 | $66,00,000 | $61,40,150 | $(4,59,850) | $42,11,815 | $20,42,11,815 |
| 01-07-2025 | $66,00,000 | $61,26,354 | $(4,73,646) | $37,38,170 | $20,37,38,170 |
| 01-01-2026 | $66,00,000 | $61,12,145 | $(4,87,855) | $32,50,315 | $20,32,50,315 |
| 01-07-2026 | $66,00,000 | $60,97,509 | $(5,02,491) | $27,47,824 | $20,27,47,824 |
| 01-01-2027 | $66,00,000 | $60,82,435 | $(5,17,565) | $22,30,259 | $20,22,30,259 |
| 01-07-2027 | $66,00,000 | $60,66,908 | $(5,33,092) | $16,97,167 | $20,16,97,167 |
| 01-01-2028 | $66,00,000 | $60,50,915 | $(5,49,085) | $11,48,082 | $20,11,48,082 |
| 01-07-2028 | $66,00,000 | $60,34,442 | $(5,65,558) | $5,82,524 | $20,05,82,524 |
| 01-01-1991 | $66,00,000 | $60,17,476 | $(5,82,524) | $0 | $20,00,00,000 |
| c) | Account Titles | Debit | Credit | ||
| 01-07-2019 | Interest Expenses | $62,67,795 | |||
| Premium on Bonds Payable | $3,32,205 | ||||
| Cash | $66,00,000 | ||||
| 01-01-2020 | Interest Expenses | $62,57,828 | |||
| Premium on Bonds Payable | $3,42,172 | ||||
| Cash | $66,00,000 | ||||
| 01-07-2020 | Interest Expenses | $62,47,563 | |||
| Premium on Bonds Payable | $3,52,437 | ||||
| Cash | $66,00,000 | ||||
| 01-01-2021 | Interest Expenses | $62,36,990 | |||
| Premium on Bonds Payable | $3,63,010 | ||||
| Cash | $66,00,000 | ||||
| 01-07-2021 | Interest Expenses | $62,26,100 | |||
| Premium on Bonds Payable | $3,73,900 | ||||
| Cash | $66,00,000 | ||||
| 01-01-2022 | Interest Expenses | $62,14,883 | |||
| Premium on Bonds Payable | $3,85,117 | ||||
| Cash | $66,00,000 | ||||
| 01-07-2022 | Interest Expenses | $62,03,329 | |||
| Premium on Bonds Payable | $3,96,671 | ||||
| Cash | $66,00,000 | ||||
| 01-01-2023 | Interest Expenses | $61,91,429 | |||
| Premium on Bonds Payable | $4,08,571 | ||||
| Cash | $66,00,000 | ||||
| 01-07-2023 | Interest Expenses | $61,79,172 | |||
| Premium on Bonds Payable | $4,20,828 | ||||
| Cash | $66,00,000 | ||||
| 01-01-2024 | Interest Expenses | $61,66,547 | |||
| Premium on Bonds Payable | $4,33,453 | ||||
| Cash | $66,00,000 | ||||
| d) | |||||
| 01-01-2024 | Bonds Payable | $20,00,00,000 | |||
| Premium on Bonds Payable | $51,18,122 | ||||
| Gain on Redemption of Bonds | 11,18,121.70 | ||||
| Cash | $20,40,00,000.00 | ||||
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