Question

Bonds

Renco issued 8 percent, semiannual bonds with a face value of $30,000 and two year maturity on January 1, 2012. The market rate of interest on the date of the issue was 6 percent. Renco retired the bonds at the end of 2012 for $30,200/ Renco uses the effective interest method for recording bond interest expense.

1. Calculate the issue price of the bonds.

2. Prepare an amortiztion schedule for the binds.

3. Prepare the journal entries to record the following.

a. Issuance of bonds.

b. Semiannual interst payments, assuming the binds are not retired at the end of the first year.

c. Repayment of the bonds, assuming they are not retired at the end of the first year.

d. Retirement of binds at the end of the first year.

4. Repeat #1-#3, assuming the market rate of interest is 10 percent.

5. Repeat #3 a-c, assuming the straight-line method of amortization is used.

*** Please show all work and calculations so I can follow along and learn***

thanks!

Answer 1

1. Issue price of the bonds is as calculated below:

Table value are based on:
n-4
i-3%
Cash Flow	Table Value	Amount	Present Value
Par (maturity value)	0.88849	30,000	26,655
Interest (annuity)	3.71710	1,200	4,461
			31,115

2. Amortization schedule for the bonds is as prepared below:

	A	B	C	D	E
Semiannual Interest Period	Cash Interest Paid	Bond Interest Expense	Premium Amortization	Premium	Carrying Value at end of period
	30,000*8%*6/12	E*6%*6/12	A-B	D-C	E-C
0				$ 1,115.13	$31,115.13
1	$1,200	$933	$266.5	$849	$30,849
2	$1,200	$925	$274.5	$574	$30,574
3	$1,200	$917	$282.8	$291	$30,291
4	$1,200	$909	$291.3	($0)	$30,000

3. Journal entries

	Year	Particulars	L.F	Debit ($)	Credit ($)
	2012
a	Jan-01	Cash		31,115
		Unamortized Bond Premium			1,115
		Bond payable			30,000
		(for bond issued for 2 years)
	Year	Particulars	L.F	Debit ($)	Credit ($)
	2012
b	Jul-01	Interest expense		933
		Unamortized Bond Premium		267
		Cash (30,000*8%*6/12)			1,200
		(For interest paid on 8% bonds and amortization of premium)
	Year	Particulars	L.F	Debit ($)	Credit ($)
	2012
	Dec-31	Interest expense		925
		Unamortized Bond Premium		275
		Cash (30,000*8%*6/12)			1,200
		(For interest paid on 8% bonds and amortization of premium)
	Year	Particulars	L.F	Debit ($)	Credit ($)
	2013
	Jul-01	Interest expense		917
		Unamortized Bond Premium		283
		Cash (30,000*8%*6/12)			1,200
		(For interest paid on 8% bonds and amortization of premium)
	Year	Particulars	L.F	Debit ($)	Credit ($)
	2013
	Dec-31	Interest expense		909
		Unamortized Bond Premium		291
		Cash (30,000*8%*6/12)			1,200
		(For interest paid on 8% bonds and amortization of premium)
c	Dec-31	Bond payable		30,000
		Cash			30,000
		(For bond paid)
d	Dec-31	Bond Payable		30,000
		Unamortized Bond Premium		574
		Cash			30,574
		(for bond retired)

4.

1-3 assuming market interest rate was 10%

1. issue Price

Table value are based on:
n-4
i-5%
Cash Flow	Table Value	Amount	Present Value
Par (maturity value)	0.82270	30,000	24,681
Interest (annuity)	3.54595	1,200	4,255
			28,936
PV factor	1	0.952
	2	0.907
	3	0.864
	4	0.823
		3.546

2. table

	A	B	C	D	E
Semiannual Interest Period	Cash Interest Paid	Bond Interest Expense	Discount amortization	Discount	Carrying Value at end of period
	30,000*8%*6/12	E*10%*6/12	B-A		E+C
0				$ 1,063.79	$28,936.21
1	$1,200	$1,447	($246.8)	($817)	$29,183
2	$1,200	$1,459	($259.2)	($558)	$29,442
3	$1,200	$1,472	($272.1)	($286)	$29,714
4	$1,200	$1,486	($285.7)	($0)	$30,000

Entries

	Year	Particulars	L.F	Debit ($)	Credit ($)
	2012
a	Jan-01	Cash		28,936
		Unamortized Bond Discount		1,064
		Bond payable			30,000
		(for bond issued for 2 years)
	Year	Particulars	L.F	Debit ($)	Credit ($)
	2012
b	Jul-01	Interest expense		1,447
		Unamortized Bond Discount			247
		Cash (30,000*8%*6/12)			1,200
		(For interest paid on 8% bonds and amortization of premium)
	Year	Particulars	L.F	Debit ($)	Credit ($)
	2012
	Dec-31	Interest expense		1,459
		Unamortized Bond Discount			259
		Cash (30,000*8%*6/12)			1,200
		(For interest paid on 8% bonds and amortization of premium)
	Year	Particulars	L.F	Debit ($)	Credit ($)
	2013
	Jul-01	Interest expense		1,472
		Unamortized Bond Discount			272
		Cash (30,000*8%*6/12)			1,200
		(For interest paid on 8% bonds and amortization of premium)
	Year	Particulars	L.F	Debit ($)	Credit ($)
	2013
	Dec-31	Interest expense		1,486
		Unamortized Bond Discount			286
		Cash (30,000*8%*6/12)			1,200
		(For interest paid on 8% bonds and amortization of premium)
c	Dec-31	Bond payable		30,000
		Cash			30,000
		(For bond paid)
d	Dec-31	Bond Payable		30,000
		Unamortized Bond Discount			558
		Cash			29,442
		(for bond retired)