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30-Sep-18 Interest Expense $85,171

Premium on bond payable $10,829

Cash $96,000

To record interest expense paid for 6 month period

Adjusting Entry; end of fiscal year:

31-Dec-18 Interest Expense $42,314

Premium on bond payable $5,686

Interest Payable $48,000

To record interest expense for 3 month period

31-Mar-19 Interest expense $42,315

Interest payable $48,000

Premium on bond payable $5,685

Cash $96,000

To record interest expense for 3 month period

Retirement of bond, effective interest method:

30-Jun-19 Interest expense $42,030

Premium on bond payable $5,970

Interest Payable $48,000

To record interest expense for 3 month period

30-Jun-19 Bonds payable $1,600,000

Premium on bond payable $75,242

Interest Payable $48,000

Gain on bond retirement $27,242

Cash $1,696,000

To record early retirement of bond

Option #1: Bonds issued at a Premium Computer Inc. is one of the pioneers in the manufacture of microprocessor for computers. On April 1, 2018, Intel issued $1,600,000 of 12% face value bonds for $1,703,411.40. The bonds are due in 4 years, and pay interest semiannually on September 30 and March 31, Intel sold the bonds to yield 10%. a. Use the spreadsheet included in the module section to prepare a bond interest expense and premium amortization schedule using the straight-line method. b. Use the same spreadsheet to prepare a bond interest expense and premium amortization schedule using the effective interest method. C. Prepare any adjusting entries for the end of the fiscal year, December 31, 2018, using the: 1. straight-line method of amortization 2. effective interest method of amortization Assume the company retires the bonds on June 30, 2019, at 103 plus accrued interest. Prepare the journal entries to record the bond retirement using the straight-line method of amortization and the effective interest method of I have included my answers below. Please review them and let me know if they are correct Questions/Issues 1. The Carrying Amount of the Bonds is $1,703,411.40 (see above problem info). Can I use $1,703,411.40 or do I need to round it up ($1,703,412) or up (S1,703,411)? 2. Do I need to round all the numbers to the nearest whole number in the schedules and the journal EFFECTIVE INTEREST METHOD CASH RECEIVED INTEREST EXPENSE PREMIUM AMORTIZATION CARRYING AMOUNT OF BONDS 1-Apr 18 1,703,411 30-Sep- 18 $1,692,58:2 31-Mar- 19 $1,681,211 30-Sep- 19 $1,669,27:2 31-Mar- 20 $1,656,735 S96,000 $85,171 $10,829 $96,000 $84,629 $11,371 $96,000 $84,061 $11,939 $96,000 $83,464 $12,536 30-Sep- 20 $1,643,57:1 31-Mar- 21 $1,629,75:1 30-Sep- 21 $1,615,238 31-Mar $96,000 $82,837 $13,163 $96,000 $82,179 $13,821 $96,000 $81,488 $14,512 $96,000 $80,762 $15,238 $1,600,000 Journal Entries 1-Apr-18 Cash $1,703,411 $1,600,000 Bond Payable Premium on bond payable To record cash received from issue of bond $103,411

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