On January 1, 2015, Splash City issues $310,000 of 9% bonds, due in 20 years, wi

Question

On January 1, 2015, Splash City issues $310,000 of 9% bonds, due in 20 years, with interest payable semiannually on June 30 and December 31 each year. Assuming the market interest rate on the issue date is 8%, the bonds will issue at $340,679.

1.) Complete the first three rows of an amortization table

Date Interest Expense Decrease in Carrying Value Carrying Value

6/30/15 ? ? ?

12/31/15 ? ? ?

2.) Record the bond issue on January 1, 2015, and the first two semiannual interest payments on June 30, 2015, and December 31, 2015.

1.) Complete the first three rows of an amortization table

Date Interest Expense Decrease in Carrying Value Carrying Value

6/30/15 ? ? ?

12/31/15 ? ? ?

2.) Record the bond issue on January 1, 2015, and the first two semiannual interest payments on June 30, 2015, and December 31, 2015.

Explanation / Answer

1. Date Interest Expense decrease in Carrying value Carrying

01/01/2015 310000

06/30/15 13183 767 309233

12/31/2015 13183 767 308466

2. 1Jan15 cash Account Dr. 340679

To bond payable 310000

To premium in Bond 30679

30june15 interest expenses Dr.13183

premium in bond Dr. 767

To cash 13950

Note : total cash expense = 310000 * 9% * 6/12

= 13950

less: preimium amortisation in as per straight

line amortisation 20years* semianually = 767   

( 340679- 310000/40)  

Interest expenses 13183

31Dec,15 interest expenses Dr.13183

premium in bond Dr. 767

To cash 13950

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