Homework Answers
Part A
The bonds were issued in a Premium because cash received ($2403407) is higher than the face value of bonds ($2200000). Bond premium = 2403407-2200000 = $203407
Part B
|
Year |
coupon |
Interest expenses |
Discount/premium amortization |
Discount/premium balance |
Bonds payable, net |
|
0 |
203407 |
2403407 |
|||
|
2015 |
220000 |
192273 |
27727 |
175680 |
2375680 |
|
2016 |
220000 |
190054 |
29946 |
145734 |
2345734 |
|
2017 |
220000 |
187659 |
32341 |
113393 |
2313393 |
|
2018 |
220000 |
185071 |
34929 |
78464 |
2278464 |
|
2019 |
220000 |
182277 |
37723 |
40741 |
2240741 |
|
2020 |
220000 |
179259 |
40741 |
0 |
2200000 |
Coupon = 2200000*10%= 220000
Interest expense = previous bonds payable, net *8%
Discount/premium amortization = coupon – interest expense
Discount/premium balance = previous Discount/premium balance - Discount/premium amortization
Bonds payable, net = previous Bonds payable, net - Discount/premium amortization
Part C
|
Date |
Account titles and explanation |
Debit |
Credit |
|
December 31, 2015 |
Cash |
220000 |
|
|
Premium on bonds payable |
27727 |
||
|
Interest revenue |
192273 |
||
|
December 31, 2016 |
Cash |
220000 |
|
|
Premium on bonds payable |
29946 |
||
|
Interest revenue |
190054 |
Part D
Capital gain = 2313393-2270000 = $43393 (carrying value is greater than purchase price)
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