Question

A company issues $16,900,000, 5.8%, 20-year bonds to yield 6% on January 1, 2020. Interest is paid on June 30 and December 31. The bonds were issued for $16,509,360. a.) Using effective-interest amortization, how much interest expense will be recognized on June 30? b.) Using effective-interest amortization, how much will be amortized on the December 31 journal entry?

Answer 1

a) $495,281 will be amortized as an expense on 30-06-2020

Journal entry for expense on 30-06-2020

Interest Expense ....dr $495,281

To 5.8% Bond. $495,281



b).

Journal entry for expense on 31-12-2020

Interest Expense ....dr $495,437

To 5.8% Bond. $495,437

AS PER QUESTION MATURITY VALUE AMOUNT RECEIVED INTEREST RATE EFFECTIVE INTEREST RATE (EIR) 1,69,00,000.00 1,65,09,360.00 5.8% P.A. 6% PA AMORTISATION TABLE DATE PARTICULARS 01-01-2020 BONDS ISSUED 30-06-2020 INTEREST PAYMENT REPAYMENT/INTEREST PRINCIPAL AMOUNT EIR @6% PAYMENT 5.8% NET BALANCE 1,65,09,360.00 1,65,09,360.00 1,65,09,360.00 4,95,281.00 4,90,100.00 1,65,14,541.00 (16509360*6/100*1/2) 1,65,14,541.00 4,95,437.00 4,90,100.00 1,65,19,878.00 (16514541*6/100*1/2) 31-12-2020 INTEREST PAYMENT Journal Entry Date Debit Credit 4,95,281.00 4,95,281.00 4,90,100.00 4,90,100.00 Particulars 30-06-2020 Interest Expense....Dr To 5.8 % Bond (Being Interest Expense Booked) 30-06-2020 5.8 % Bond .Dr To Bank (Being Contractual Payment Made) 31-12-2020 Interest Expense ...Dr To 5.8 % Bond (Being Interest Expense Booked 31-12-2020 5.8 % Bond ....Dr To Bank (Being Contractual Payment Made) 4,95,437.00 4,95,437.00 4,90,100.00 4,90,100.00