Waterway Co. sells $507,000 of 8% bonds on March 1, 2017. The bonds pay interest
ID: 2409794 • Letter: W
Question
Waterway Co. sells $507,000 of 8% bonds on March 1, 2017. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2020. The bonds yield 12%.
Prepare a bond amortization schedule using the effective-interest method for discount and premium amortization. Amortize premium or discount on interest dates and at year-end. (Round answers to 0 decimal places, e.g. 38,548.)
Prepare all of the relevant journal entries from the time of sale until the date indicated. (Assume that no reversing entries were made.) (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date
Account Titles and Explanation
Debit
Credit
3/1/17
3/1/18
Wildhorse Co. sells $429,000 of 12% bonds on June 1, 2017. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2021. The bonds yield 8%. On October 1, 2018, Wildhorse buys back $128,700 worth of bonds for $134,700 (includes accrued interest).
Prepare a bond amortization schedule using the effective-interest method for discount and premium amortization. Amortize premium or discount on interest dates and at year-end. (Round answers to 0 decimal places, e.g. 38,548.)
Prepare all of the relevant journal entries from the time of sale until the date indicated. Give entries through December 1, 2019. (Assume that no reversing entries were made.) (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date
Account Titles and Explanation
Debit
Credit
6/1/17
12/1/17
12/31/17
6/1/18
10/1/18
(To record interest expense and premium amortization)
10/1/18
(To record buy back of bonds)
12/1/18
12/31/18
6/1/19
12/1/19
Date
Account Titles and Explanation
Debit
Credit
3/1/17
3/1/179/1/1712/31/173/1/189/1/1812/31/18
3/1/179/1/1712/31/173/1/189/1/1812/31/18
3/1/18
3/1/179/1/1712/31/173/1/189/1/1812/31/18
3/1/179/1/1712/31/173/1/189/1/1812/31/18
Explanation / Answer
Maturity value of bonds payable $507,000 Present value of $507,000 due in 7 periods at 6% 337,184 Present value of interest payable$20,280* semiannually 113,211 Proceeds from sale of bonds 450,395 Discount on bonds payable $56,605 *507000 x 4% = $20,280 Date Account Titles and Explanation Debit Credit 3/1/17 Cash $ 450,395 Discount on Bonds Payable $ 56,605 Bonds Payable $ 507,000 9/1/17 Interest Expense $ 27,024 Discount on Bonds Payable $ 6,744 Cash [$507,000 × 8% × (6/12)] $ 20,280 12/31/17 Interest Expense $ 18,285 Discount on Bonds Payable [$7,148 × (4/6 mos)] $ 4,765 Interest Payable [$507,000 × 8% × (4/12 mos)] $ 13,520 3/1/18 Interest Expense $ 9,143 Interest Payable $ 13,520 Discount on Bonds Payable [$7,148 × (2/6 mos)] $ 2,383 Cash [$507,000 × 8% × (6/12)] $ 20,280 9/1/18 Interest Expense $ 27,857 Discount on Bonds Payable $ 7,577 Cash $ 20,280 12/31/18 Interest Expense $ 18,875 Discount on Bonds Payable [$8,032 × (4/6 mos)] $ 5,355 Interest Payable [$507,000 × 8% × (4/12 mos)] $ 13,520 Schedule of Bond Discount Amortization Effective Interest Method 8% Bonds Sold to Yield 12% Date Cash Paid Interest Expense Bond Discount carrying Value of Bonds Mar 1, 17 $ 450,395 Sep 1, 17 $ 20,280 $ 27,024 $ 6,744 $ 457,139 Mar 1, 18 $ 20,280 $ 27,428 $ 7,148 $ 464,287 Sep 1, 18 $ 20,280 $ 27,857 $ 7,577 $ 471,864 Mar 1, 19 $ 20,280 $ 28,312 $ 8,032 $ 479,896 Sep 1, 19 $ 20,280 $ 28,794 $ 8,514 $ 488,410 Mar 1, 20 $ 20,280 $ 29,305 $ 9,025 $ 497,434 Sep 1, 20 $ 20,280 $ 29,846 $ 9,566 $ 507,000 Rounding of $1
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