Question

Problem 14-5

In each of the following independent cases, the company closes its books on December 31.

Sanford Co. sells $500,000 of 10% bonds on March 1, 2017. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2020. The bonds yield 12%.

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
3/1/17 $
$
$
$
9/1/17
3/1/18
9/1/18
3/1/19
9/1/19
3/1/20
9/1/20

Prepare all of the relevant journal entries from the time of sale until the date indicated. (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.)

Date
Account Titles and Explanation
Debit
Credit
3/1/17

3/1/18

Titania Co. sells $400,000 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, Titania buys back $120,000 worth of bonds for $126,000 (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.)

Date
Account Titles and Explanation
Debit
Credit
6/1/17
12/1/17
12/31/17
6/1/18
10/1/18
(To record interest expense and premium amortization)
10/1/18
(To record buy back of bonds)
12/1/18
12/31/18
6/1/19
12/1/19

Answer 1

				Amount ( In $)
1	1-Mar-17	Cash	472,090
		Discount on Bonds Payable	27,911
		Bonds Payable		500,000
		Maturity Value of Bonds	=		500,000
		Present Value of $ 500,000 due in 7 periods at 6%	=	332,530
		( $ 500,000 X 0.66506) (A)
		Present Value of interest payable semiannually	=	139,560
		($ 25,000 X 5.58238) (B)
		Proceeds from sale of bonds (A)+ (B)	=		(472,090)
		Discount on Bonds Payable			27,911
	1-Sep-17	Interest Expense	28,325
		Discount on Bonds Payable		3,325
		Cash		25,000
	31-Dec-17	Interest Expense	19,017
		Discount on Bonds Payable ($ 3525 X 4/6)		2,350
		Interest Payable ( $ 25,000 X 4/6)		16,667
	1-Mar-18	Interest Expense	9,508
		Interest Payable	16,667
		Discount on Bonds Payable ($ 3525 X 2/6)		1,175
		Cash		25,000
	1-Sep-18	Interest Expense	28,736
		Discount on Bonds Payable		3,736
		Cash		25,000
	31-Dec-18	Interest Expense	19,307
		Discount on Bonds Payable ($ 3525 X 4/6)		2,640
		Interest Payable ( $ 25,000 X 4/6)		16,667
				Schedule of Bond Discount Amortization
				Effective Interest Method
				10% Bonds Sold to Yield 12%
			Date	Credit Cash	Debit Interest Expense	Credit Bond Discount	Carrying Value of Bonds
			1-Mar-17				472,090
			1-Sep-17	25,000	28,325	3,325	475,415
			1-Mar-18	25,000	28,525	3,525	478,940
			1-Sep-18	25,000	28,736	3,736	482,676
			1-Mar-19	25,000	28,961	3,961	486,637
			1-Sep-19	25,000	29,198	4,198	490,835
			1-Mar-20	25,000	29,450	4,450	495,285
			1-Sep-20	25,000	29,715	4,715	500,000