Problem 14-5 In each of the following independent cases the company closes its b
ID: 2493912 • Letter: P
Question
Problem 14-5
In each of the following independent cases the company closes its books on December 31.
Schedule of Bond Discount Amortization
Effective-Interest Method
Bonds Sold to Yield
Date
Cash
Paid
Interest
Expense
Discount
Amortized
Carrying
Amount of
Bonds
Date
Account Titles and Explanation
Debit
Credit
3/1/14
9/1/14
12/31/14
3/1/15
9/1/15
12/31/15
SHOW LIST OF ACCOUNTS
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Schedule of Bond Discount Amortization
Effective-Interest Method
Bonds Sold to Yield
Date
Cash
Paid
Interest
Expense
Discount
Amortized
Carrying
Amount of
Bonds
No.
Account Titles and Explanation
Debit
Credit
6/1/14
12/1/14
12/31/14
6/1/15
10/1/15
(To record interest expense and premium amortization)
10/1/15
(To record buy back of bonds)
12/1/15
12/31/15
6/1/16
12/1/16
Problem 14-5
In each of the following independent cases the company closes its books on December 31.
Explanation / Answer
1. Sanford Co.
6/1/14
Cash............................................................................
490,973
Discount on Bonds Payable..................................
29,027
Bonds Payable................................................
520,000
Maturity value of bonds payable
$520,000
Present value of $250,000 due in 7 periods at 6%
($520,000 X .66506)
$345,831
Present value of interest payable semiannually
($26,000 X 5.5824)
145,142
Proceeds from sale of bonds
(490,973)
Discount on bonds payable
$ 29,027
12/1/14
Interest Expense.............................................
29,458
Discount on Bonds Payable...............
3,458
Cash.........................................................
26,000
06/01/15
Interest Expense.............................................
19,777
Discount on Bonds Payable...............
2,444
($3,666 X 4/6)
Interest Payable ($26,000 X 4/6)..........
17,333
12/1/15
Interest Expense.............................................
9,889
Interest Payable...............................................
17,333
Discount on Bonds Payable...............
1,222
($3,666 X 2/6)
Cash.........................................................
26,000
06/1/16
Interest Expense.............................................
29,886
Discount on Bonds Payable...............
3,886
Cash.........................................................
26,000
12/31/16
Interest Expense.............................................
20,079
Discount on Bonds Payable...............
2,746
($4,119 X 4/6)
Interest Payable.....................................
17,333
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
6/1/14
$490,973
12/1/14
$26,000
$29,458
$3,458
494,431
6/1/15
26,000
29,666
3,666
498,097
12/1/15
26,000
29,886
3,886
501,983
6/1/16
26,000
30,119
4,119
506,102
12/1/16
26,000
30,366
4,366
510,468
6/1/17
26,000
30,628
4,628
515,096
12/1/17
26,000
30,628
4,628
520,000
2. Titania Co.
6/1/14
Cash............................................................................
452,362
Premium on Bonds Payable.........................
27,462
Bonds Payable................................................
424,900
Maturity value of bonds payable
$424,900
Present value of $424,900 due in 8 periods at 5%
($424,900 X .67684)
$287,589
Present value of interest payable semiannually
($25,494 X 6.46321)
164,773
Proceeds from sale of bonds
452,362
Premium on bonds payable
$ 27,462
12/1/14
Interest Expense.............................................
22,618
Premium on Bonds Payable.........................
2,876
Cash ($424,900 X .12 X 6/12)..............
25,494
12/31/14
Interest Expense ($22,474 X 1/6).................
3,746
Premium on Bonds Payable......... Payable
503
($3,020 X 1/6)
Interest Payable ($25,494 X 1/6).........
4,249
6/1/15
Interest Expense ($22,474 X 5/6).................
18,728
Interest Payable..............................................
4,251
Premium on Bonds Payable.........................
2,515
($3,020 X 5/6)
Cash........................................................
25,494
10/1/15
Interest Expense.............................................
4,167
($22,323 X .28 X 4/6)
Premium on Bonds Payable.........................
592
($3,171 X .28 X 4/6)
Cash........................................................
4,759
*$121,600 ¸ $429,400 = .28
10/1/15
Bonds Payable................................................
121,600
Premium on Bonds Payable.........................
5,666
Gain on Redemption of Bonds..........
3,600
Cash........................................................
123,666
Reacquisition price
($128,530 – $121,600 X 12% X 4/12)
$123,666
Net carrying amount of bonds redeemed:
Par value
$121,600
Unamortized premium
[.28 X ($27,462– $2,876 – $3,020) – $423]
5,666
(127,266)
Gain on redemption
$ (3,600)
12/1/16
Interest Expense ($22,323X .71).............
15,934
Premium on Bonds Payable...................
2,251
($3,171 X .71)
18,185
Cash ($25494 X .71).........................
20,395
*($424,900 – $121,600) ¸ $424,900 = .71
12/31/15
Interest Expense.......................................
2,623
($22,164X .71 X 1/6)
Premium on Bonds Payable...................
394
($3,330 X .71 X 1/6)
Interest Payable...............................
3,017
($25,494 X .71 X 1/6)
6/1/16
Interest Expense ($22,164 X .71 X 5/6)..
13,114
Interest Payable.........................................
3,017
Premium on Bonds Payable...................
1,970
($3,330 X .71 X 5/6)
Cash ($25,494 X .71)........................
18,101
12/1/16
Interest Expense ($21,997 X .71)............
15,618
Premium on Bonds Payable...................
2,483
($3,4976 X .71)
Cash ($25,494 X .71)........................
18,101
Date
Cash Credit
Debit
Interest Expense
Debit
Bond
Premium
Carrying Value of Bonds
6/1/14
$452,362
12/1/14
$25,494
$22,618
$2,876
449,486
6/1/15
25,494
22,474
3,020
446,466
12/1/15
25,494
22,323
3,171
443,275
6/1/16
25,494
22,164
3,330
439,945
12/1/16
25,494
21,997
3,497
436,448
6/1/17
25,494
21,822
3,672
432,776
12/1/17
25,494
21,639
3,855
428,921
6/1/18
25,494
21,473
4,021
424,900
*$27 adjustment due to rounding.
1. Sanford Co.
6/1/14
Cash............................................................................
490,973
Discount on Bonds Payable..................................
29,027
Bonds Payable................................................
520,000
Maturity value of bonds payable
$520,000
Present value of $250,000 due in 7 periods at 6%
($520,000 X .66506)
$345,831
Present value of interest payable semiannually
($26,000 X 5.5824)
145,142
Proceeds from sale of bonds
(490,973)
Discount on bonds payable
$ 29,027