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On 1-1-2015 Avion, Inc. Sold Bonds with these particulars: Face amt. of Bonds 300,000 Matures on...


On 1-1-2015 Avion, Inc. Sold Bonds with these particulars:

Face amt. of Bonds 300,000

Matures on 1-1-2025, in 10 yrs.

Stated annual rate of int. 7.50%

Effective annual rate of interest 8.00%

Int. is paid every six months; 6-30, 12-31

Req. 1, Assume the effective Interest Method in accounting for these Bonds, build a 10 year amortization table

Req. 2, Give General Journal entries to record the sale of the bonds, and the 1st 4 interest payments

Solutions

Expert Solution

Maturity value of bonds 300000
Stated rate of interest 7.50%
Cash interest semi annual 11250
Annuity factory for 20 periods at 4% 13.59
Present value factor for Period-20 0.4564
Present value of Maturity 136920
Present value of interest 152887.5
Total Issue Price of bonds 289807.5
Amort Chart
Date Caryying Value Cash Interest Discount Unamortized Carrying
in the beg. Interest Expense Amortized Discount Value of Bonds
1.1.2015 10192 289808
30.06.2015 289808 11250 11592 342 9850 290150
31.12.15 290150 11250 11606 356 9494 290506
30.06.16 290506 11250 11620 370 9123 290877
31.12.16 290877 11250 11635 385 8738 291262
30.06.17 291262 11250 11650 400 8338 291662
31.12.17 291662 11250 11666 416 7921 292079
30.06.18 292079 11250 11683 433 7488 292512
31.12.18 292512 11250 11700 450 7038 292962
30.06.19 292962 11250 11718 468 6569 293431
31.12.19 293431 11250 11737 487 6082 293918
30.06.20 293918 11250 11757 507 5575 294425
31.12.20 294425 11250 11777 527 5048 294952
30.06.21 294952 11250 11798 548 4500 295500
31.12.21 295500 11250 11820 570 3930 296070
30.06.22 296070 11250 11843 593 3338 296662
31..12.22 296662 11250 11866 616 2721 297279
30.06.23 297279 11250 11891 641 2080 297920
31.12.23 297920 11250 11917 667 1413 298587
30.06.24 298587 11250 11943 694 719 299281
31.12.24 299281 11250 11971 719 0 300000
Journal entries
Date Accounts title and explanations Debit $ Credit $
Jan1 2015 Cash Account Dr. 289808
Discount on bonds payable Account Dr. 10192
         Bonds payable 300000
30.06.15 Interest expense Account Dr. 11592
        Cash account 11250
         Discount on bonds payable 342
31.12.15 Interest expense Account Dr. 11606
        Cash account 11250
         Discount on bonds payable 356
30.06.16 Interest expense Account Dr. 11620
        Cash account 11250
         Discount on bonds payable 370
31.12.16 Interest expense Account Dr. 11635
        Cash account 11250
         Discount on bonds payable 385

ekkarill92 answered 1 year ago
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