Question

Clipboard Font Alignment Number B15 o P А c с D E F G H K L M N 1 Before you begin, print out all the pages in this workbook. 2 Otter Products Inc. issued bonds on January 1, 2019. Interest is to be paid semi- 3 annually. Other information is as follows: 4 Term in years: 2 5 Face value of bonds issued: $200,000 6 Issue price: $206,000 7 Specified interest rate each payment period: 6% 8 Required: 9 1 Calculate: 10 a. The amount of interest paid in cash every payment period. 11 b. The amount of amortization to be recorded at each interest payment date (use the 12 straight-line method). 13 2 Complete this amortization table by calculating interest expense, and beginning and 14 ending bond carrying amounts at the end of each period over two years. 15 16 Amortization Table 17 A B C D E (A + D) Beg Actual Periodic bond Periodic cash discount Ending bond Period carrying interest interest (prem.) carrying Year ending amount expense paid amort. 20 2019 Jun. 30 Dec. 31 22 2020 Jun. 30 Required Copyright 18 19 amount 21

Answer 1

1.

a. Interest paid in cash = face value * coupon rate = $200,000 * 6% = $12,000.00

b. Amortization amount as per straight line method = (Issue price - face value)/Periods = ($206,000-$200,000)/6 = $1,000

2.

		A	B	C	D	E=A+D
Year	Period Ending	Beg. bond carrying amount	Periodic interest expense	Actual cash interest paid	Periodic discount (prem.) amort.	Ending bond carrying amount
2019	30-Jun	$ 206,000.00	$ 11,000.00	$ 12,000.00	$ (1,000.00)	$ 205,000.00
	31-Dec	$ 205,000.00	$ 11,000.00	$ 12,000.00	$ (1,000.00)	$ 204,000.00
2020	30-Jun	$ 204,000.00	$ 11,000.00	$ 12,000.00	$ (1,000.00)	$ 203,000.00
	31-Dec	$ 203,000.00	$ 11,000.00	$ 12,000.00	$ (1,000.00)	$ 202,000.00
2021	30-Jun	$ 202,000.00	$ 11,000.00	$ 12,000.00	$ (1,000.00)	$ 201,000.00
	31-Dec	$ 201,000.00	$ 11,000.00	$ 12,000.00	$ (1,000.00)	$ 200,000.00

3.

		A	B	%
Year	Six-month period ending	Bond carrying amount	Six-month interest expense	(B/A)
2019	30-Jun	$ 205,000.00	$ 11,000.00	5.37%
	31-Dec	$ 204,000.00	$ 11,000.00	5.39%
2020	30-Jun	$ 203,000.00	$ 11,000.00	5.42%
	31-Dec	$ 202,000.00	$ 11,000.00	5.45%
2021	30-Jun	$ 201,000.00	$ 11,000.00	5.47%
	31-Dec	$ 200,000.00	$ 11,000.00	5.50%

4.

Date	General ledger/Details	Debit	Credit
Jan 1 2019	Cash A/c	$ 206,000.00
	6% Bonds payable A/c		$ 200,000.00
	Premium on 6% bonds A/c		$      6,000.00
	(To record bonds issued for cash)
Jun 30 2019	Interest expense-6% bonds A/c	$    11,000.00
	Premium on 6% bonds A/c	$       1,000.00
	Cash A/c		$    12,000.00
	(To record interest expense for 6% bonds)
Dec 31 2019	Interest expense-6% bonds A/c	$    11,000.00
	Premium on 6% bonds A/c	$       1,000.00
	Cash A/c		$    12,000.00
	(To record interest expense for 6% bonds)