Effective Interest Amortization On January 1, 2012, Raines, Inc., issued $250,00

Question

Effective Interest Amortization On January 1, 2012, Raines, Inc., issued $250,000 of 6%, 15-year bonds for $206,690, yielding an effective interest rate of 8%. Semiannual interest is payable on June 30 and December 31 each year. The firm uses the effective interest method to amortize the discount, Required a. Prepare an amortization schedule showing the necessary information for the first two interest periods. Round amounts to the nearest dollar. b. Prepare the journal entry for the bond issuance on January 1, 2012 c. Prepare the journal entry to record the bond interest payment and discount amortization at June 30. d. Prepare the journal entry to record the bond interest payment and discount amortization at December Balance Book Value Interest Interest Interest Periodio of Bonds Expense Year Period Paid Amortization Unamortized End of Period Discount at issue 0 0 0 0 0 0 0 0 0

Explanation / Answer

250000                      

7500

Total Discount = 250000-206690 =43310 Time Period Balance Amount Interest @ 4% per semi annual period Coupon Payment on 250000 @ 3% Balance Balance unamoritized Portion of discount (A) (B) (C ) (A)+(B) - (C ) (D) = 43310-(B)+(C ) 1 206690.00 8267.6 7500 207457.60 42542.40 1.5 207457.60 8298.30 7500 208255.90 41744.10 2 208255.90 8330.24 7500 209086.14 40913.86 2.5 209086.14 8363.45 7500 209949.59 40050.41 5 209949.59 8397.98 7500 210847.57 39152.43 6 210847.57 8433.90 7500 211781.47 38218.53 7 211781.47 8471.26 7500 212752.73 37247.27 8 212752.73 8510.11 7500 213762.84 36237.16 9 213762.84 8550.51 7500 214813.35 35186.65 10 214813.35 8592.53 7500 215905.89 34094.11 11 215905.89 8636.24 7500 217042.12 32957.88 12 217042.12 8681.68 7500 218223.81 31776.19 13 218223.81 8728.95 7500 219452.76 30547.24 14 219452.76 8778.11 7500 220730.87 29269.13 15 220730.87 8829.23 7500 222060.11 27939.89 16 222060.11 8882.40 7500 223442.51 26557.49 17 223442.51 8937.70 7500 224880.21 25119.79 18 224880.21 8995.21 7500 226375.42 23624.58 19 226375.42 9055.02 7500 227930.44 22069.56 20 227930.44 9117.22 7500 229547.65 20452.35 21 229547.65 9181.91 7500 231229.56 18770.44 22 231229.56 9249.18 7500 232978.74 17021.26 23 232978.74 9319.15 7500 234797.89 15202.11 24 234797.89 9391.92 7500 236689.81 13310.19 25 236689.81 9467.59 7500 238657.40 11342.60 26 238657.40 9546.30 7500 240703.70 9296.30 27 240703.70 9628.15 7500 242831.84 7168.16 28 242831.84 9713.27 7500 245045.12 4954.88 29 245045.12 9801.80 7500 247346.92 2653.08 30 247346.92 9893.88 7500 249740.80 259.20 Issue of Bond Bank A/c 206690 Discount on Issue of Bond A/c 43310 To 6% Bond A/c

250000                      

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