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Presented below are selected transactions on the books of Tamarisk Corporation. May 1, 2017 Bonds payable...

Presented below are selected transactions on the books of Tamarisk Corporation.

May 1, 2017		Bonds payable with a par value of $825,600, which are dated January 1, 2017, are sold at 106 plus accrued interest. They are coupon bonds, bear interest at 11% (payable annually at January 1), and mature January 1, 2027. (Use interest expense account for accrued interest.)
Dec. 31		Adjusting entries are made to record the accrued interest on the bonds, and the amortization of the proper amount of premium. (Use straight-line amortization.)
Jan. 1, 2018		Interest on the bonds is paid.
April 1		Bonds with par value of $330,240 are called at 102 plus accrued interest, and redeemed. (Bond premium is to be amortized only at the end of each year.)
Dec. 31		Adjusting entries are made to record the accrued interest on the bonds, and the proper amount of premium amortized.

Prepare journal entries for the transactions above. (Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answers to 0 decimal places, e.g. 38,548. 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.)

Expert Solution

Date	Account title	Debit	credit
May 1 2017	cash	905408
	Interest expense		30272
	Premium on bond payable		49536
	Bond payable (Refer working 1)		825600

Dec 31	Interest expense	90816
	Interest payable (825600*11%)		90816

Dec 31	Premium on bond payable (working 2)	3416
	Interest expense		3416

Jan 1 2018	Interest payable	90816
	cash		90816

April 1 2018	Bond payable	330240
	premium on bond payable	17935
	Interest expense	9082
	cash		345927
	Gain on redemption of bond (working 3)		11330

Dec 31	Interest expense	54490
	Interest payable (495360*11%)		54490

Dec 31	premium on bond payable	3587
	Interest expense [working 4]	3587

Working

1)Issue price of Bond =825600*106/100 = 875136

Premium on bond payable = Issue price -face value

= 875136-825600

= 49536

Being interest accrued for 4 months (1Jan -1May ) at time of issuance = par value *rate *n/12

= 825600*11%*4 /12

= 30272

Working 2)

Number of years to maturity(in months that is from (1May 2017-1Jan 2027) = 116months

monthly amortization of bond premium =Bond premium /months to maturity

= 49536 /116

= $ 427.034483

Being premium amortized for 8 months (1May -31Dec )=427.034483*8 = 3416 rounded

working 3)

Total premium amortization for 3 months (1Jan -1Apr )= 427.034483 *3 = 1281.103449

Premium amortization attributable to bond redeemed = Bond premium *par value of bonds redeemed /total par value of bonds issued

= 1281.103449*330240 /825600

= 512.441380

Total premium received on issuance		49536
Less:Amortization in 2017		-3416
carrying value at end of 2017		46120
Carrying value of premium attributable to redeemed bonds [46120*330240/825600]	18448
less:Amortization on redeemed bonds to be made at end of year 2018 for 3months outstanding (1Jan -1Apr )	-512.441380
Carrying value of premium on bonds ready for redemption	17935 rounded

working 4)

Total premium received on issuance		49536
Less:Amortization in 2017		-3416
carrying value of premium at end of 2017		46120
Carrying value of premium attributable to redeemed bonds [carrying value at 2017* par value of redeemed bonds /total par value of issued bonds] [46120*330240/825600]		-18448
Premium outstanding for bonds not yet redeemed		27672
Number of years left to maturity after 2017 [1Jan 2018-1Jan 2027= 9 years or 9*12 =108 months]		108
Premium amortization per month on bonds not redeemed [27672/108]		256.222222 per month
Total amortization on bonds not redeemed for 2018		256.222222*12 = 3074.666667

Now ,

Total amortization on bonds not redeemed for 2018	3074.666667
Amortization on redeemed bonds to be made at end of year 2018 for 3months outstanding (1Jan -1Apr )	512.441380
Total amortization for 2018	3587 rounded

Since At time of redemption ,Bond amortization on bond redeemed are not made for 3 months (1Jan -31Mar) as adjustment is to be made at end of year ,so same is recorded at end of year.

ekkarill92 answered 1 year ago

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