Question

On January 1, 2021, a company issues $800,000 of 10% bonds, due in ten years, with interest payable semiannually on June 30 and December 31 each year. Assuming the market interest rate on the issue date is 9%, the bonds will issue at $852,031.
Required:
A. Fill in the blanks in the amortization schedule below:
Date Cash Paid Interest Change in Carrying Value Carrying Value
Expense
01/01/2021
06/30/2021
12/31/2021
2. Record the bond issue on January 1, 2021, and the first two semi-annual interest payments on June 30, 2021, and December 31, 2021.

Answer 1

Answer:

I will start with question 2)

January 1, 2021, bonds issued at a premium

Dr Cash 852,031

    Cr Bonds payable 800,000

    Cr Premium on bonds payable 52,031

June 30, 2021, first coupon payment

Dr Interest expense 37,398.45

Dr Premium on bonds payable 2,601.55

    Cr Cash 40,000

December 31, 2021, first coupon payment

Dr Interest expense 37,398.45

Dr Premium on bonds payable 2,601.55

    Cr Cash 40,000

2)

Date         Cash        Interest           Change in              Carrying Value

                paid         expense          carrying value

01/01            -                  -                 52,031                    852,031

06/30      40,000     37,398.45       49,429.45              849,429.45

12/21        40,000     37,398.45       46,827.90              846,827.90