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Sage Co. sells $ 403,000 of 12% bonds on June 1, 2017. The bondspay...

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Accounting

Sage Co. sells $ 403,000 of 12% bonds on June 1, 2017. The bondspay interest on December 1 and June 1. The due date of the bonds isJune 1, 2021. The bonds yield 10%. On October 1, 2018, Sage buysback $ 132,990 worth of bonds for $ 138,990 (includes accruedinterest).

-Prepare a bond amortization schedule using the effective-interestmethod for discount and premium amortization. Amortize premium ordiscount on interest dates and at year-end

-Prepare all of the relevant journal entries from the time ofsale until the date indicated. Give entries through December 1,2019. (Assume that no reversing entries were made.)

Answer & Explanation Solved by verified expert
4.4 Ratings (978 Votes)

Calculation of Present Value of Bond:

Helf Year ending on Particular Cash Outflow PVIF PV of Cash Outflows
Dec-17 Interest               24,180 0.952380952       23,028.57
Jun-18 Interest               24,180 0.907029478       21,931.97
Dec-18 Interest               24,180 0.863837599       20,887.59
Jun-19 Interest               24,180 0.822702475       19,892.95
Dec-19 Interest               24,180 0.783526166       18,945.66
Jun-20 Interest               24,180 0.746215397       18,043.49
Dec-20 Interest               24,180 0.71068133       17,184.27
Jun-21 Interest & Principal           4,27,180 0.676839362    2,89,132.24
Total    4,29,046.75

Bond Amortisation Schedule:

Helf Year ending on Opening Interest expense Payment done Closing Bond Amortisation
(Premium)
Dec-17                 4,29,046.75         21,452.34       24,180.00    4,26,319.08           2,727.66
Jun-18                 4,26,319.08         21,315.95       24,180.00    4,23,455.04           2,864.05
Dec-18                 4,23,455.04         21,172.75       24,180.00    4,20,447.79           3,007.25
Jun-19                 4,20,447.79         21,022.39       24,180.00    4,17,290.18           3,157.61
Dec-19                 4,17,290.18         20,864.51       24,180.00    4,13,974.69           3,315.49
Jun-20                 4,13,974.69         20,698.73       24,180.00    4,10,493.42           3,481.27
Dec-20                 4,10,493.42         20,524.67       24,180.00    4,06,838.10           3,655.33
Jun-21                 4,06,838.10         20,341.90    4,27,180.00                       -             3,839.00
        26,047.65

Journal Entries:

Issuance of Bond:

01-07-2017 Cash/Bank Dr    4,29,046.75
Bonds Payable Cr    4,03,000.00
Premium on Bonds Payable Cr       26,046.75

Interest entry:

01-12-2017 Interest Expense Dr       21,452.34
Premium on Bonds Payable Dr          2,727.66
Cash Cr       24,180.00
01-07-2018 Interest Expense Dr       21,315.95
Premium on Bonds Payable Dr          2,864.05
Cash Cr       24,180.00

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In: AccountingSage Co. sells $ 403,000 of 12% bonds on June 1, 2017. The bondspay interest...Sage Co. sells $ 403,000 of 12% bonds on June 1, 2017. The bondspay interest on December 1 and June 1. The due date of the bonds isJune 1, 2021. The bonds yield 10%. On October 1, 2018, Sage buysback $ 132,990 worth of bonds for $ 138,990 (includes accruedinterest).-Prepare a bond amortization schedule using the effective-interestmethod for discount and premium amortization. Amortize premium ordiscount on interest dates and at year-end-Prepare all of the relevant journal entries from the time ofsale until the date indicated. Give entries through December 1,2019. (Assume that no reversing entries were made.)

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