On January 1,2017, Pyne Furniture Co. issued $700,000 of 10 percent bonds to yie
ID: 2548913 • Letter: O
Question
On January 1,2017, Pyne Furniture Co. issued $700,000 of 10 percent bonds to yield 8 percent. The net present value of the bonds on the date of sale was $795,141. Interest is payable semiannually on July 1 and December 31. The bonds mature in ten years. Pyne Furniture Company's year ends on December 31 INSTRUCTIONS: 1) (19 pts) Create an amortization table using the straight-line method for the first four periods. 2) (19 pts) Create an amortization table using the effective interest method for the first four periods. 3) (15 pts) Prepare the journal entries to record bond-related transactions as of the following dates: a. January 1, 2017 to issue the bonds b. July 1, 2017 to record the first interest payment using effective interest method c. December 31, 2017 to record the second interest payment using effective interest method. 4) (2 pts) Record the journal entry to pay the bond off at maturity.Explanation / Answer
1 Straight line method Year Cash paid Interest expense Premium amortized Premium on bonds Carrying amount 01-01-2017 95141 795141 31-07-2017 35000 30243 4757 90384 790384 31-12-2017 35000 30243 4757 85627 785627 31-07-2018 35000 30243 4757 80870 780870 31-12-2018 35000 30243 4757 76113 776113 2 Effective interest method 10% 8% Year Cash paid Interest expense Premium amortized Premium on bonds Carrying amount 01-01-2017 95141 795141 31-07-2017 35000 31806 3194 91947 791947 31-12-2017 35000 31678 3322 88625 788625 31-07-2018 35000 31545 3455 85169 785169 31-12-2018 35000 31407 3593 81576 781576 3 01-01-2017 Cash 795141 Premium on bonds payable 95141 Bonds payable 700000 01-07-2017 Interest expense 31806 Premium on bonds payable 3194 Cash 35000 31-12-2017 Interest expense 31678 Premium on bonds payable 3322 Cash 35000 4 At maturity Bonds payable 700000 Cash 700000