Question

Otter Products Inc. issued bonds on January 1, 2019. Interest is to be paid semi-annually. Other information is as follows:

Before   you begin, print out all the pages in this workbook.

Otter   Products Inc. issued bonds on January 1, 2019. Interest is to be paid   semi-annually. Other information is as follows:

Term in years:

2

Face value of bonds   issued:

$200,000

Issue price:

$206,000

Specified interest rate   each payment period:

6%

Required:

1

Calculate:

a. The amount of   interest paid in cash every payment period.

b. The   amount of amortization to be recorded at each interest payment date (use the   straight-line method).

2

Complete   this amortization table by calculating interest expense, and beginning and   ending bond carrying amounts at the end of each period over two years.

Amortization Table

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

Jun. 30

Dec. 31

2020

Jun. 30

Dec. 31

2021

Jun. 30

Dec. 31

3

Calculate   the actual interest rate under the straight-line method of amortization for   each six-month period. Round all percentage calculations to two decimal   placed. Use the following format:

A

B

Six month period ending

Bond   carrying amount

Six-month   interest expense

%

Year

(B/A)

2019

Jun. 30

Dec. 31

2020

Jun. 30

Dec. 31

2021

Jun. 30

Dec. 31

4

Prepare the journal entry   for December 31, 2019.

Can anyone help with this one thank you. 

Answer 1

Req 1.
Par value of bonds				200000
Stated rate				6%
Semi annual cash interest (200000*6%*6/12)				6000
Premium on bonds payable				6000
Divide: Total periods				6
Premium amortized each period				1000
Req 2.
Amort chart
Year	Period	Bond	Periodic	Actual cash	Premium	Ending carrying
		carrying amt	Int payment	Interest	amortized	amount
2019	30-Jun	206000	5000	6000	1000	205000
	31-Dec	205000	5000	6000	1000	204000
2020	30-Jun	204000	5000	6000	1000	203000
	31-Dec	203000	5000	6000	1000	202000
2021	30-Jun	202000	5000	6000	1000	201000
	31-Dec	201000	5000	6000	1000	200000
Req 3.
Year	Period	Bond carrying	Six month
		amount	Interest expense
2019	30-Jun	205000	5000
	31-Dec	204000	5000
2020	30-Jun	203000	5000
	31-Dec	202000	5000
2021	30-Jun	201000	5000
	31-Dec	200000	5000
Req 4.
Journal entry:
Date	Accounts title and explanations				Debit $	Credit $
31.12.19	Interest expenses				5000
	Premium on bonds payable				1000
	Cash account					6000