Prepare the journal entry to record the issuance of the bonds on January 1, 2016
ID: 2603996 • Letter: P
Question
Prepare the journal entry to record the issuance of the bonds on January 1, 2016. (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.)
Prepare a bond amortization schedule up to and including January 1, 2020, using the effective interest method. (Round answers to 0 decimal places, e.g. 38,548.)
Assume that on July 1, 2019, Swifty Co. redeems half of the bonds at a cost of $1,135,200 plus accrued interest. Prepare the journal entry to record this redemption. (Round answers to 0 decimal places, e.g. 38,548. 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.)
Explanation / Answer
(a)
Present value of the principal
$2,140,000 X .35218 (PV10, 11%).......................
$ 753,665
Present value of the interest payments
$256,800* X 5.88923 (PVOA10, 11%).................
1,512,354
Present value (selling price of the bonds).....
$2,266,019
*$2,140,000 X 12.0% = $256,800
Cash............................................................................ .....................................................................................
2,266,019
Bonds Payable................................................
2,140,000
Premium Bonds Payable..............................
126,019
(b)
Date
Cash Paid
Interest Expense
Premium Amortization
Carrying Amount of Bonds
1/1/16
$2,266,019
1/1/17
$256,800
$249,262
$7,538
2,258,481
1/1/18
256,800
248,433
8,367
2,250,114
1/1/19
256,800
247,513
9,287
2,240,827
1/1/20
256,800
246,491
10,309
2,230,517
(c)
Carrying amount as of 1/1/19..............................
$2,240,827
Less: Amortization of bond premium
(10,309 ÷ 2)..................................................
5,155
Carrying amount as of 7/1/19..............................
$2,235,672
Reacquisition price...............................................
$1,135,200
Carrying amount as of 7/1/19
($2,235,672 ÷ 2)...................................................
(1,117,836)
Loss on redemption of bonds............................ ..................................................................................
$ 17,364
Entry for accrued interest
Interest Expense................................................
61,623
Premium on Bonds Payable
($5,132 X 1/2 X 1/2).........................................
2,577
Cash
($256,800 X 1/2 X 1/2)...........................
64,200
Entry for reacquisition
Bonds Payable...................................................
1,070,000
Premium on Bonds Payable............................
47,836*
Loss on Redemption of Bonds ......................
17,364
Cash............................................................
1,135,200
*Premium as of 7/1/19 to be written off
($2,235,672 – $2,140,000) X 1/2 = $47,836
The loss is reported as an ordinary loss.
(a)
Present value of the principal
$2,140,000 X .35218 (PV10, 11%).......................
$ 753,665
Present value of the interest payments
$256,800* X 5.88923 (PVOA10, 11%).................
1,512,354
Present value (selling price of the bonds).....
$2,266,019