Problem 14-5 In each of the following independent cases, the company closes its
ID: 2593873 • Letter: P
Question
Problem 14-5 In each of the following independent cases, the company closes its books on December 31. Grouper Co. sells $494,000 of 10% bonds on March 1, 2017. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2020. The bonds yield 12%. Prepare a bond amortization schedule using the effective-interest method for discount and premium amortization. Amortize premium or discount on interest dates and at year-end. (Round answers to 0 decimal places, e.g. 38,548.) Schedule of Bond Discount Amortization Effective-Interest Method Bonds Sold to Yield Date Cash Paid Interest Expense Discount Amortized Carrying Amount of Bonds 3/1/17 $ $ $ $ 9/1/17 3/1/18 9/1/18 3/1/19 9/1/19 3/1/20 9/1/20 Prepare all of the relevant journal entries from the time of sale until the date indicated. (Assume that no reversing entries were made.) (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit 3/1/17 3/1/18 SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT LINK TO TEXT Monty Co. sells $414,000 of 12% bonds on June 1, 2017. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2021. The bonds yield 10%. On October 1, 2018, Monty buys back $136,620 worth of bonds for $143,620 (includes accrued interest). Prepare a bond amortization schedule using the effective-interest method for discount and premium amortization. Amortize premium or discount on interest dates and at year-end. (Round answers to 0 decimal places, e.g. 38,548.) Schedule of Bond Discount Amortization Effective-Interest Method Bonds Sold to Yield Date Cash Paid Interest Expense Discount Amortized Carrying Amount of Bonds 6/1/17 $ $ $ $ 12/1/17 6/1/18 12/1/18 6/1/19 12/1/19 6/1/20 12/1/20 6/1/21 * Difference due to rounding Prepare all of the relevant journal entries from the time of sale until the date indicated. Give entries through December 1, 2019. (Assume that no reversing entries were made.) (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit 6/1/17 12/1/17 12/31/17 6/1/18 10/1/18 (To record interest expense and premium amortization) 10/1/18 (To record buy back of bonds) 12/1/18 12/31/18 6/1/19 12/1/19 Click if you would like to Show Work for this question: Open Show Work
Explanation / Answer
Present Value of the bonds = $ 494,000 x 10 % x 1/2 x 5.58239 + $ 494,000 x 0.66506 = $ 137,885 + $ 328,540 = $ 466,425
Bond Amortization Schedule :
Present Value of $ 1 :
In the books of Grouper Co.
Date Amount Paid Interest Expense Discount Amortization Discount on Bonds Payable Carrying Value of Bonds Payable 3/1/2017 0 0 0 $ 27,575 $ 466,425 9/1/2017 24,700 27,986 3,286 24,289 469,711 3/1/2018 24,700 28,183 3,483 20,806 473,194 9/1/2018 24,700 28,392 3,692 17,114 476,886 3/1/2019 24,700 28,613 3,913 13,201 480,799 9/1/2019 24,700 28,848 4,148 9,053 484,947 3/1/2020 24,700 29,097 4,397 4,656 489,344 9/1/2020 24,700 29,361 4,656 0 494,000