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4. Bonds Issued between Interest Dates D Company planned on Issuing bonds $2000,000 on January 1,...

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Accounting

4. Bonds Issued between Interest Dates

D Company planned on Issuing bonds $2000,000 on January 1, 2018but due to slowdowns

the bonds were not sold until April 1, 2018. These 8 year bondspay 6% interest annually

each December 31st and were sold to yield 5.5%.

Prepare and amortization table for these bonds and the entry torecord their issuance and the

first payment on December 31, 2018.

Answer & Explanation Solved by verified expert
4.1 Ratings (731 Votes)

Calculation of present value of bond
Annual interest payments (A) $120,000
Annuity factor @5.5% for 8 years (B) 6.3346
Present value of interest payments (C=A*B) $760,152
Bond repayment after 8 years (D) $2,000,000
P.V factor for 5.5% at 8 years (E) 0.6516
Present value of bond repayment value (F=D*E) $1,303,200
Total present value of future payments (G=C+F) $2,063,352
Year A Interest @ 6% (B) Effective interest (C=A*5.5%) Discount amortization (D) Bond value
(E=A-D)
1 $2,063,352 $120,000 $113,484.36 $6,515.64 $2,056,836
2 $2,056,836.36 $120,000 $113,126.00 $6,874.00 $2,049,962
3 $2,049,962.36 $120,000 $112,747.93 $7,252.07 $2,042,710
4 $2,042,710.29 $120,000 $112,349.07 $7,650.93 $2,035,059
5 $2,035,059.36 $120,000 $111,928.26 $8,071.74 $2,026,988
6 $2,026,987.62 $120,000 $111,484.32 $8,515.68 $2,018,472
7 $2,018,471.94 $120,000 $111,015.96 $8,984.04 $2,009,488
8 $2,009,487.90 $120,000 $110,521.83 $9,478.17 $2,000,010
Date Journal entry Debit Credit
31-Dec Interest expense ($2,000,000*6%*9/12) $90,000
Interest payable ($2,000,000*6%*3/12) $30,000
Cash $120,000

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