Question

Thanks in advance.

Problem 10-9AB Effective Interest: Amortization of bond premium; computing bond price LO P1, P6 Ellis issues 9.0%, five-year bonds dated January 1, 2018, with a $480,000 par value. The bonds pay interest on June 30 and December 31 and are issued at a price of $499,483. The annual market rate is 8% on the issue date. (Table B1 Table 8.2. Table B 3. and Table 8.4) (Use appropriate factor(s) from the tables provided.) Required: 1. Compute the total bond interest expense over the bonds' life. 2. Prepare an effective interest amortization table for the bonds' life. 3. Prepare the journal entries to record the first two interest payments. 4. Use the market rate at issuance to compute the present value of the remaining cash flows for these bonds as of December 31, 2020.

Answer 1

Required 1
	10	payments of		21600	216000
		par value at maturity			480,000
		Total repaid			696000
		less:Total amount borrowed			499,483
		total bond interest expense			196,517
Required 2
Semi annual	Cash intt	Bont intt	premium	Unamortized	Carrying
intt period	paid	expense	amortization	premium	value
1/1/2018				19,483	499,483
6/30/2018	21600	19979	1621	17862	497862
12/31/2018	21600	19914	1686	16177	496177
6/30/2019	21600	19847	1753	14424	494424
12/31/2019	21600	19777	1823	12601	492601
6/30/2020	21600	19704	1896	10705	490705
12/30/2020	21600	19628	1972	8733	488733
6/30/2021	21600	19549	2051	6682	486682
12/31/2021	21600	19467	2133	4550	484550
6/30/2022	21600	19382	2218	2332	482332
12/31/2022	21600	19268	2332	0	480000
Total	216000	196517	19483		5,393,549
Required 3
Date	Account titles & Explanations				Debit	Credit
6/30/2018	interest expense				19979
	premium on bonds payable				1621
	cash					21600
12/31/2018	interest expense				19914
	premium on bonds payable				1686
	cash					21600
Required 4
Table values are based on
n=	10
i=	4%
cash flow		table value	amount	PV
par(maturity value)		0.6756	480000	324288
interest (annuity)		8.1109	21600	175195.4
price of bonds				499483