Bond interest and discount amortization. BU Curriculum Corporation issued $900,0
ID: 2500014 • Letter: B
Question
Bond interest and discount amortization. BU Curriculum Corporation issued $900,000 of 8% bonds on November 1, 2015, due on November 1, 2020. The interest is to be paid twice a year on May 1 and November 1. The bonds were sold to yield 10% effective annual interest. BU Curriculum Corporation closes its books annually on December 31. Instructions (a) Complete an amortization schedule for the above bond (for all periods) in a similar format as below. (Round all answers to the nearest dollar.) Use the effective-interest method. Date Credit Cash Debit Interest Expense Credit Bond Discount Carrying Amount of Bonds Nov. 1, 2015 Use the PV formula in Excel; see posted bond excel sheet in the classroom May 1, 2016 ….continue schedule (use Excel) (b) Prepare the journal entries for the following: 1. November 1, 2015 bond issue 2. Adjusting entry for December 31, 2015 (adjusting entry should cover 2 months) 3. May 1, 2016 entry 4. November 1, 2016 entry 5. Adjusting entry from December 31, 2016 (c) Compute the interest expense to be reported in the income statement for the year ended December 31, 2015 and December 31, 2016. (d) Complete an amortization schedule for the above bond (for all periods) using the straight-line amortization method (entries are not required).Explanation / Answer
Calulation of price of bond Since interest is paid two times so rate shall be half and time will be double so rate=4% Yield=5% Year=10 Let face value of share =1000 Year Cash Flow(in $) PVAF@5% Amount 1 40 0.9524 38.10 2 40 0.9070 36.28 3 40 0.8638 34.55 4 40 0.8227 32.91 5 40 0.7835 31.34 6 40 0.7462 29.85 7 40 0.7107 28.43 8 40 0.6768 27.07 9 40 0.6446 25.78 10 40 0.6139 24.56 10 900000 0.6139 552510.00 Total 552818.87