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Entity A issued $5,000,000 of 6%, 10-year bonds on January 1, 2020, for $4,328,974 to yield an effective annual rate of 8%
Entity A issued $5,000,000 of 6%, 10-year bonds on January 1, 2020, for $4,328,974 to yield an effective annual rate of 8%. Interest is payable annually on January 1. The effective-interest method of amortization is to be used. You can round to the nearest dollar. A. Prove that the amount received for the bonds is correct. You can use the present value tables in Appendix G of the text. B. Complete the bond amortization schedule below. The first line is complete. Interest Periods BOND AMORTIZATION SCHEDULE Interest Interest Discount Unamortized to be paid expense Amortization Discount 671,026 Bond Carrying Value 4,328,974 January 1, 2020 January 1, 2021 January 1, 2022 C. Record the issuance of the bonds on January 1, 2020. D. Make the first entry to accrue bond interest expense on December 31, 2020 (the interest will actually be paid January 1, 2021). E. Prepare a partial balance sheet, show any current or long-term liabilities relating to these bonds at December 31, 2020.
Expert Solution
| A.) | Present Value of Maturity | 2,315,958 | =PV(8%,10,0,-5000000,0) |
| Add: Present value of Interest | 2,013,015 | =PV(8%,10,-5000000*6%,0) | |
| Amount received for the bonds | $ 4,328,974 | ||
| B.) | Amount $ | |||||
| Interest Periods | Interest to be paid | Interest Expense | Discount Amortization | Unamortized Discount | Bond Carrying value | |
| @6% of 5,000,000 | @ 8% of Carrying value | Expense - Interest paid | ||||
| January 1,2020 | 671,026 | 4,328,974 | ||||
| January 1,2021 | 300,000 | 346,318 | 46,318 | 624,708 | 4,375,292 | |
| January 1,2022 | 300,000 | 350,023 | 50,023 | 574,685 | 4,425,315 | |
| C.) | Date | Account Titles | Debit $ | Credit $ |
| January 1,2020 | Cash | 4,328,974 | ||
| Discount on Bonds Payable | 671,026 | |||
| Bonds Payable | 5,000,000 | |||
| D.) | Date | Account Titles | Debit $ | Credit $ |
| December 31,2020 | Interest Expense | 346,318 | ||
| Discount on Bonds Payable | 46,318 | |||
| Cash | 300,000 | |||
| E.) | Partial Balance Sheet | |||
| As at December 31,2020 | Amount $ | |||
| Current Liabilities | ||||
| Bonds Payable | 50,023 | |||
| Non-Current Liabilities | ||||
| Bonds Payable | 4,325,269 | =4375292-50023 | ||
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