Question

Question 1 of 6 < > 0.93 / 8 View Policies Show Attempt History Current Attempt in Progress On July 1, 2020 Tamarisk Limited issued bonds with a face value of $900,000 due in 20 years, paying interest at a face rate of 11% on January 1 and July 1 each year. The bonds were issued to yield 12%. The company's year-end was September 30. The company used the effective interest method of amortization. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1. Your answer is partially correct. Using 1. factor Tables 2. a financial calculator, or 3. Excel function PV, calculate the premium or discount on the bonds. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to decimal places, e.g. 5,275.) Discount on bond $ 51619 e Textbook and Media Assistance Used eTextbook List of Accounts

Answer 1

Working notes: Based on PV table Amount $900,000 $49,500 PV factor at 6% 0.09722 15.04630 Face value-Bond Cash interest Issue price of Bond Face value of Bond Discount on issue of bond PV of Cash flows $87,500 $744,792 $832,292 $900,000 $67,708 Cash interest is on face value of bond = $900,000*11%/2 = $49,500 1 Discount on issue of bonds $67,708 Date Amortization table Effective-Interest Method Period Cash Discount Interest Interest Paid Amortization Carrying value expense $832,292 $49,500 $49,937 $437 $832,729 $49,500 $49,964 $464 $833,193 1-Jul-20 1-Jan-21 1-Jul-21 2 Credit Date July 1, 2020 Account Titles and Explanation Cash Discount on bonds payable Bond payable (To record issue of bonds) Debit $832,292 $67,708 $900,000 3 Date Debit $24,969 Accrual entry Account Titles and Explanation Sep 30, 2020 Interest expense Discount on bonds payable Interest payable (To record interest accrued) Credit $49,937/6* 3 months $219 $437/6*3 months $24,750 $49,500/6* 3 months 4 Credit 1st payment of interest on bonds Date Account Titles and Explanation Jan 1, 2019 Interest expense Interest payable Discount on bonds payable Cash (To record interest paid) Debit $24,969 $24,750 $49,937/6* 3 months $219 $437/6*3 months $49,500