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6/30/y1, $5,000,000 face value bonds, with an 8% coupon rate, are issued to yield 5%. These...

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Accounting

6/30/y1, $5,000,000 face value bonds, with an 8%
coupon rate, are issued to yield 5%. These are 20-
year bonds, and they pay interest on June 30 and
December 31. These bonds were issued for $6,882,706.
Please record the following, using the effective interest
approach:
6/30/y1 issuance of the bonds.
12/31/y1 payment of interest.
6/30/y2 payment of interest.
12/31/y2 payment of interest.

Answer & Explanation Solved by verified expert
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Solution:

Bond Amortization Schedule
Date Cash Paid Interest Expense Premium Amortized Unamortized Premium Carrying Value
6/30/Y1 $1,882,706 $6,882,706
12/31/Y1 $200,000 $172,068 $27,932 $1,854,774 $6,854,774
6/30/Y2 $200,000 $171,369 $28,631 $1,826,143 $6,826,143
12/31/Y2 $200,000 $170,654 $29,346 $1,796,797 $6,796,797
Journal Entries
Date Particulars Debit Credit
6/30/Y1 Cash Dr $6,882,706.00
       To Bond Payable $5,000,000.00
       To Premium on Bond Payable $1,882,706.00
(To record issue of bond at premium)
12/31/Y1 Interest expense Dr $172,068.00
Premium on bond payable Dr $27,932.00
       To Cash $200,000.00
(To record interest payment and premium amortization)
6/30/Y2 Interest expense Dr $171,369.00
Premium on bond payable Dr $28,631.00
       To Cash $200,000.00
(To record interest payment and premium amortization)
12/31/Y2 Interest expense Dr $170,654.00
Premium on bond payable Dr $29,346.00
       To Cash $200,000.00
(To record interest payment and premium amortization)

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