Question

Please show all work and explanation. I leave thumbs up!

On April 1, 2017, B&D Co. issued 4-year bonds with a par value of $1,000,000. 9% interest is paid every March 31st and the going market rate for comparable bonds was 6.5%. B&D records interest using the straight-line method. Part A. Prepare a bond amortization schedule. Part B. Prepare the necessary journal entry (or entries) for the bonds on 12/31/2017 when B&D prepares financial statements. Part C. Prepare all necessary journal entries for 3/31/2021.

Answer 1

Face Value of Bonds PV factor (6.5%, 4 years) Present Value of Face Value $ 10,00,000 0.77732 $ 7,77,320 (a) Interest @ 9% PV annuity factor (6.5%,4) Present Value of Interest $ 90,000 3.4258 $ 3,08,322 (b) Issue Price of Bond (a+b) $ 10,85,642 Exp Solution A) Amortization Schedule Bond Cash Int Interest Premium Premium Carrying Period End paid amortization Balance Value 01-04-2017 $ 85,642 $10,85,642 31-03-2018 $ 90,000 $ 70,567 $ 21,411 $ 64,232 $10,64,232 31-03-2019 $ 90,000 $ 69,175 $ 21,411 $ 42,821 $ 10,42,821 31-03-2020 $ 90,000 $ 67,783 $ 21,411 $ 21,411 $10,21,411 31-03-2021 $ 90,000 $ 66,392 $ 21,411 $ $ 10,00,000 Credit Solution B) Journal Entries in the books of B&D Co. Date General Journal Debit 01-04-2017 Cash $ 10,85,642 Premium on Issue Bonds Payable (To record issue of bonds at premium) 31-12-2017 Interest Expense $ 52,925 Premium on Issue $ 16,058 Interest Payable (To record interest expense) $ 85,642 $ 10,00,000 $ 68,983

Credit Solution C) Date General Journal 31-03-2021 Interest Payable Premium on Issue Interest Expense Cash (To record interest expense) $ $ $ Debit 68,049 5,353 16,598 $ 90,000

In case of any doubts or Issues , please do comment below