Question

Xerox Company Issues		$        2,000,000	9%	2	yr bonds at	97
Interest is payable on July 1st and January 1st, 2014. Straight-line method is used for amorization.

Optional Work Area		Face, Price, Carry Value >	2,000,000	97	1,940,000
		Bond Rate>	9%	Discount/Premium>	60,000
		# Periods >	4

JE #5: Redeem Bonds @ 101 on Jan 1st year #2 assuming Bond Interest payment has been made. This is a test of your total understanding of using the bond amortization table and basic accounting principles. 'Critical thinking' is required. Explanation should contain all data needed for someone else who has the amortization table to verify the JE.

Answer 1

answer :

Bond Amortization schedule is as prepared below:

Particulars	Amount
Face value of Bond	20,00,000
Less: Bond issue price (2,000,000*.97)	19,40,000
Unamortized Bond discount	60,000
Amortized in 4 period	15,000

Amortization Schedule

	A	B	C	D	E
Period	Cash interest Payment	Interest expense	Amortization of Bond Discount	Unamortized Bond discount	Bond carry value (E+C)
	(2,000,000*9%)/2	A+C	D/4
Jan1 2013				60,000	$19,40,000
1	90,000	1,05,000	15000	45000	19,55,000
2	90,000	1,05,000	15000	30000	19,70,000
3	90,000	1,05,000	15000	15000	19,85,000
4	90,000	1,05,000	15000	0	20,00,000

Required journal entries are as prepared below:

Date	Particulars	L.F	Amount ($)		Amount ($)
2013
Jan-01	Cash (2,000,000/100*97)		19,40,000
	Unamortized Bond discount		60,000
	Bond payable				20,00,000
	(for bond issued at 97 for 2 years)
Jul-01	Interest expense		1,05,000
	Unamortized Bond discount				15,000
	Cash				90,000
	(For interest paid on 9% bonds and amortization of discount for half year)
Dec-31	Interest expense		1,05,000
	Unamortized Bond discount				15,000
	Interest payable				90,000
	(For accrued interest on 9% bonds and amortization of discount for half year)
2014
Jan-02	Interest Payable		90,000
	Cash				90,000
	(For interest paid)
Jan-02	Bond payable		20,00,000
	Loss on redemption of bond		50,000
	Unamortized bond discount				30,000
	Cash (2,000,000*100/101)				20,20,000
	(For Retired $2,000,000 9 percent bonds at 101)