On January 1, 2017, Tamarisk Inc. sold 15% bonds having a maturity value of $890
ID: 2604521 • Letter: O
Question
On January 1, 2017, Tamarisk Inc. sold 15% bonds having a maturity value of $890,000 for $920,555, which provides the bondholders with a 14% yield. The bonds are dated January 1, 2017 and mature on January 1, 2022, with interest payable on January 1 of each year. The company follows IFRS and uses the effective interest method.
Prepare the journal entry at the date of issue.
Prepare a schedule of interest expense and bond amortization for 2017 through 2020.
Prepare the journal entries to record the interest payment and the amortization for 2017
Explanation / Answer
(i) Journal Entry at the date of issue (Amount in $)
(ii) Cash paid for interest each year = $890,000*15% = $133,500
Interest expense for 2017 = Carrying value*yield = $920,555*14% = $128,878
Schedule of interest expense and bond amortization for 2017 through 2020
(iii) Journal entries to record interest payment and amortization for 2017 (Amt in $)
Date Account Titles Debit Credit January 1, 2017 Cash 920,555 Bonds payable 890,000 Premium on Bonds payable (Bal.fig.) 30,555