Following is an amortization table for an issue of three-year bonds on January 1
ID: 2494223 • Letter: F
Question
Following is an amortization table for an issue of three-year bonds on January 1, 2014: Require How much were the bonds sold for? What is the stated (contractual) rate of interest? What is the effective rate of interest? Record the entries necessary over the life of the bonds for the issuance, retirement and yearly interest accrual. You do not need to record the payment of interest. Date Account Title Debit Credit The accounts for the first entry have been entered enter the amounts and record the remaining entries. Start each entry opposite the date Place you answer in the shaded boxes below with any computations to the right 1/1/14 Cash Premium on Bonds Payable Bonds PayableExplanation / Answer
A)
The bonds were sold for 105154.
B)
Stated rate of interest = contractual interest/ face value of the bond
= 10,000/100,000
=10%
C)
Effective rate of interest = effective interest incurred/ carrying value of bond
=8412/105154
= 8%
D)
Date
Account title
Debit
Credit
1/1/2014
Cash
105154
Premium on bonds payable
5154
bonds payable
100000
(For issue of bond)
12/31/2014
Interest expense
8412
Premium on bonds payable
1588
Cash
10000
( for payment of coupon)
12/31/2015
Interest expense
8285
Premium on bonds payable
1715
Cash
10000
( for payment of coupon)
12/31/2016
Interest expense
8148
Premium on bonds payable
1852
Cash
10000
( for payment of coupon)
12/31/2016
Bonds payable
100000
Cash
100000
(For redemption of bond)
Date
Account title
Debit
Credit
1/1/2014
Cash
105154
Premium on bonds payable
5154
bonds payable
100000
(For issue of bond)
12/31/2014
Interest expense
8412
Premium on bonds payable
1588
Cash
10000
( for payment of coupon)
12/31/2015
Interest expense
8285
Premium on bonds payable
1715
Cash
10000
( for payment of coupon)
12/31/2016
Interest expense
8148
Premium on bonds payable
1852
Cash
10000
( for payment of coupon)
12/31/2016
Bonds payable
100000
Cash
100000
(For redemption of bond)