Bonds Renco issued 8 percent, semiannual bonds with a face value of $30,000 and

Question

Bonds

Renco issued 8 percent, semiannual bonds with a face value of $30,000 and two year maturity on January 1, 2012. The market rate of interest on the date of the issue was 6 percent. Renco retired the bonds at the end of 2012 for $30,200/ Renco uses the effective interest method for recording bond interest expense.

1. Calculate the issue price of the bonds.

2. Prepare an amortiztion schedule for the binds.

3. Prepare the journal entries to record the following.

a. Issuance of bonds.

b. Semiannual interst payments, assuming the binds are not retired at the end of the first year.

c. Repayment of the bonds, assuming they are not retired at the end of the first year.

d. Retirement of binds at the end of the first year.

4. Repeat #1-#3, assuming the market rate of interest is 10 percent.

5. Repeat #3 a-c, assuming the straight-line method of amortization is used.

*** Please show all work and calculations so I can follow along and learn***

thanks!

Explanation / Answer

1. Issue price of the bonds is as calculated below:

2. Amortization schedule for the bonds is as prepared below:

3. Journal entries

4.

1-3 assuming market interest rate was 10%

1. issue Price

2. table

Entries

Table value are based on: n-4 i-3% Cash Flow Table Value Amount Present Value Par (maturity value) 0.88849 30,000 26,655 Interest (annuity) 3.71710 1,200 4,461 31,115

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