Haley Industries issued $120,000 of 11%, 7-year bonds on December 31, 2013, with
ID: 2464822 • Letter: H
Question
Haley Industries issued $120,000 of 11%, 7-year bonds on December 31, 2013, with a $5,842 premium. Interest is paid annually on December 31. The market rate of interest is 10%.
1A. Prepare the amortization table using the effective interest rate method. If an amount box does not require an entry, leave it blank or enter "0". If required, round your answers to the nearest whole dollar.
1B. Record the journal entries for December 31, 2015, and 2016. If an amount box does not require an entry leave it blank. If required, round amounts to the nearest whole dollar.
Haley Industries Amortization Table Period Cash Payment (Credit) Interest Expense (Debit) Premium on Bonds Payable (Debit) Premium on Bonds Payable Balance Carrying Value At issue 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20Explanation / Answer
Answer 1A Bonds book value at the start = $125842 Premium on bond $5842 is to be amortised to Interest exp.over life of the bond i.e.7 years. Annual Interest payment = $120000 * 11% = $13200 Effective Interest rate per annum = 10% The effective interest rate is multiplied times the bond's book value at the start of the accounting period to arrive at each period's interest expense Haley Industries Amortization schedule Period Cash Payment (Credit) Interest exp.(Debit) Premium on bonds Payable(Debit) Premium on payable balance Carrying Value At issue 5,842 1,25,842 31/12/2014 13200 12,584 616 5,226 1,25,226 31/12/2015 13200 12,523 677 4,549 1,24,549 31/12/2016 13200 12,455 745 3,804 1,23,804 31/12/2017 13200 12,380 820 2,984 1,22,984 31/12/2018 13200 12,298 902 2,082 1,22,082 31/12/2019 13200 12,208 992 1,091 1,21,091 31/12/2020 13200 12,109 1,091 -0 1,20,000 Answer 1B Journal Entries Date Account Title Debit Credit December 31,2015 Interest Expense 12523 Premium on Bonds Payable 677 Cash 13200 December 31,2016 Interest Expense 12455 Premium on Bonds Payable 745 Cash 13200
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