Problem 14-5 In each of the following independent cases, the company closes its
ID: 2595213 • 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
Answer 1. Table Value Based on n= 7 (3.50 Years X 2) i= 6.00% (12% / 2) Cash Flow Amount Present Value Interest - $494,000 X 10% X 6/12 24,700 137,885 ($24,700 X 5.58238) Principal 494,000 328,540 ($494,000 X 0.66506) Issue Price of Bonds 466,424 Discount on issue of Bonds 27,576 Bond Discount Amortization Schedule Date Interest Paid - $494,000 X 10% X 6/12 Interest Expense - Preceeding Bond Carrying Value X 12% X 6/12 Discount Amortization Unamortized Discount Bonds Carrying Amount A B C = B-A D = D - C E = $494,000 - D 1-Mar-17 - - - 27,576 466,424 1-Sep-17 24,700 27,985 3,285 24,290 469,710 1-Mar-18 24,700 28,183 3,483 20,808 473,192 1-Sep-18 24,700 28,392 3,692 17,116 476,884 1-Mar-19 24,700 28,613 3,913 13,203 480,797 1-Sep-19 24,700 28,848 4,148 9,055 484,945 1-Mar-20 24,700 29,097 4,397 4,658 489,342 1-Sep-20 24,700 29,358 4,658 (0) 494,000 Journal Entry Date Particualrs Dr. Amt Cr. Amt 1-Mar-17 Cash Dr. 466,424 Discount on issue of Bonds Dr. 27,576 To Bonds Payable 494,000 (Record the issue of Bonds) 1-Sep-17 Interest Expenses Dr. 27,985 To Discount on issue of Bonds 3,285 To Cash 24,700 (Record the interest paid) 1-Mar-18 Interest Expenses Dr. 28,183 To Discount on issue of Bonds 3,483 To Cash 24,700 (Record the interest paid) 1-Sep-18 Interest Expenses Dr. 28,392 To Discount on issue of Bonds 3,692 To Cash 24,700 (Record the interest paid) 1-Mar-19 Interest Expenses Dr. 28,613 To Discount on issue of Bonds 3,913 To Cash 24,700 (Record the interest paid) 1-Sep-19 Interest Expenses Dr. 28,848 To Discount on issue of Bonds 4,148 To Cash 24,700 (Record the interest paid) 1-Mar-20 Interest Expenses Dr. 29,097 To Discount on issue of Bonds 4,397 To Cash 24,700 (Record the interest paid) 1-Sep-20 Interest Expenses Dr. 29,358 To Discount on issue of Bonds 4,658 To Cash 24,700 (Record the interest paid) 1-Sep-20 Bonds Payable Dr. 494,000 To Cash 494,000 (Record the redemption of Bonds)