Homework Answers
| In this question the issue price of the bond is not given, we have to calculate the issue price considering the effective rate of interest |
| Effective rate of interest = 6% |
| Semi-annual rate of interest = 6%/2 = 3% |
| Bond term = 10 Years |
| Bond term semi annual = 10*2 = 20 years |
| Interest on bond = 7% |
| Semi-annual interest= 7/2 = 3.5% |
| Interest Payment = 600000*3.5% |
Interest Payment =   21000 |
| Issue price = Present value of future interest payment + Present value of its repayment |
| Present value annuity factor at 3% semi-annual for 20 terms is 14.8775 |
| Present value factor at 3% at 20th terms is 0.55368 |
| Issue price = (21000 X 14.8775)+(600000*0.55368) |
|
Issue price = 644636 Amortisation Schedule ia attached in the image along with the table showing the excel formula Below is the Journal entries |
| Journal Entries | |||
| Date | Particulars | Debit | Credit |
| Jan 1st | Cash | 644,636 | |
| Bonds payable | 600,000 | ||
| Premium on bonds payable (644636-600000) | 44,636 | ||
| July 1st | Interest Expense (Refer amortisation table) | 19,339 | |
| Premium on bond payable (Refer amortisation table) | 1,661 | ||
| Cash | 21,000 | ||
| Dec 31st | Interest Expense (Refer amortisation table) | 19,289 | |
| Premium on bond payable (Refer amortisation table) | 1,711 | ||
| Interest Payable | 21,000 |
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issuance, (b) the July 1 interest payment, and (c) the December 31
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