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Default Download IU A. A 1. Fast Tires issued $5,000,000 of five-year, 10% bonds on June 30, 2045, for $5,405,550. The bonds

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Answer #1
Journal Entries
date explanation debit credit
30-Jun cash 5405550
bonds payable 5000000
premium on bonds payable 405550
(bonds issued with premium)
30-Sep interest expense 104722.5
premium on bonds payable 20277.5
cash 125000
(interest payment made)
31-Dec interest expense 104722.5
premium on bonds payable 20277.5
cash 125000
(interest payment made)
30-Jun bonds payable 5000000
cash 5000000
(retirement of bonds made)
Bond amortization table Using straight line method of premium amortization
Period Interest paid = face value*Interest rate interest expense =cash paid as interest expese- Premium amortized premium amortized = premium on bonds payable/life of bond balance in premium to be amortized = previous year balance-premum amortized carrying value of bond= previous year balance-premium amortized
0 405550 5405550
1 125000 104722.5 20277.5 385272.5 5385272.5
2 125000 104722.5 20277.5 364995 5364995
3 125000 104722.5 20277.5 344717.5 5344717.5
4 125000 104722.5 20277.5 324440 5324440
5 125000 104722.5 20277.5 304162.5 5304162.5
6 125000 104722.5 20277.5 283885 5283885
7 125000 104722.5 20277.5 263607.5 5263607.5
8 125000 104722.5 20277.5 243330 5243330
9 125000 104722.5 20277.5 223052.5 5223052.5
10 125000 104722.5 20277.5 202775 5202775
11 125000 104722.5 20277.5 182497.5 5182497.5
12 125000 104722.5 20277.5 162220 5162220
13 125000 104722.5 20277.5 141942.5 5141942.5
14 125000 104722.5 20277.5 121665 5121665
15 125000 104722.5 20277.5 101387.5 5101387.5
16 125000 104722.5 20277.5 81110 5081110
17 125000 104722.5 20277.5 60832.5 5060832.5
18 125000 104722.5 20277.5 40555 5040555
19 125000 104722.5 20277.5 20277.5 5020277.5
20 125000 104722.5 20277.5 0 5000000
Bond amortization table Using effective interest method of premium amortization
Period Interest paid = face value*Interest rate interest expense = carrying value of bonds*market interest rate premium amortized = interest paid-interest expense balance in premium to be amortized carrying value of bond
0 405550 5405550
1 125000 108111 16889 388661 5388661
2 125000 107773.22 17226.78 371434.22 5371434.22
3 125000 107428.6844 17571.3156 353862.9044 5353862.904
4 125000 107077.2581 17922.74191 335940.1625 5335940.162
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