On January 1, 2018, White Water issues $570,000 of 7% bonds, due in 10 years, wi
ID: 2534588 • Letter: O
Question
On January 1, 2018, White Water issues $570,000 of 7% bonds, due in 10 years, with interest payable annually on December 31 each year. Assuming the market interest rate on the issue date is 6%, the bonds will issue at $611,950.
a. Complete the first three rows of an amortization table.
b. Record the bond issue on January 1, 2018, and the first two interest payments on December 31, 2018, and December 31, 2019. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Explanation / Answer
Par value of bonds 570000 Stated rate of interest 7% Market rate of interest 6% Cash annual interest payment 39900 Issue price of bonds 611950 Premium on bonds payable 41950 Amortization Table Date Cash Interest Premium Unamortized Carrying Value Interest Expensse Amortized Premium Of bonds Jan 1 2018 41950 611950 Dec31 2018 39900 36717 3183 38767 608767 Dec 31 2019 39900 36526 3374 35393 605393 Dec31 2020 39900 36324 3576 31817 601817 Journal Entries: Date Accounts title and explanations Debit $ Credit $ Jan1 2018 Cash Account Dr. 611950 Bonds payable Account 570000 Premium on Bonds payable Account 41950 Dec 31 2018 Interest expense Account Dr. 36717 Premium on Bonds payable Dr. 3183 Cash Account 39900 Dec 31 2019 Interest expense Account Dr. 36526 Premium on Bonds payable Dr. 3374 Cash Account 39900
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