Problem 1: Bond Amortization Schedules On January 1, 2013, Joshua Jackson Compan
ID: 2350113 • Letter: P
Question
Problem 1: Bond Amortization Schedules On January 1, 2013, Joshua Jackson Company issued 12%, $100,000 face value bonds for $103,545.91, a price to yield 10%. The bonds mature on December 31. 2014. Interest is paid semiannually on June 30 and December 31. Required: a) Prepare a bond interest expense and amortization schedule using the straight-line method. b) Prepare a bond interest expense and amortization schedule using the effective interest method. c) Prepare the journal entry to record the issuance of the bond on January 1, 2013. d) Prepare the journal entries to record the interest payments on June 30, 2013, and December 31, 2013, using both methods.Explanation / Answer
Bonds sold at 102, so proceeds were 102,000. Market rate was 4.8% (PV -102,000, FV -100,000, N - 30, Pymt - 2,500), therefore R = 2.4 x 2, or 4.8% Bonds Payable = 100,000 Bond Premium = 2,000 Interest paid semi annually = 100,000 x 2.5%, or 2,500 Interest Payment will be 2,500 for 30 periods Interest Expense will be 2.4% of CV Period #1 - (a) Interest expense = 2.4% of CV (102,000), or 2,448 (b) Amortization = 2,500 - 2,448, or 52, leaving a balance of 1,948 (c) Ending CV = 100,000 + 1,948, or 101,948 Period #2 - (a) Interest expense = 2.4% of CV (101,948), or 2,447 (b) Amortization = 2,500 - 2,447, or 53, leaving a balance of 1,895 (c) Ending CV = 100,000 + 1,895, or 101,895 Period #3 - (a) Interest expense = 2.4% of CV (101,895), or 2,445 (b) Amortization = 2,500 - 2,445, or 55, leaving a balance of 1,840 (c) Ending CV = 100,000 + 1,840, or 101,840