Legacy issues $640,000 of 8.5%, four-year bonds dated January 1, 2017, that pay

Question

Legacy issues $640,000 of 8.5%, four-year bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31. They are issued at $570,443 and their market rate is 12% at the issue date.

Record the issue of bonds with a par value of $640,000 cash on January 1, 2017 at an issue price of $570,443.

Determine the total bond interest expense to be recognized over the bonds' life.

Prepare a straight-line amortization table for the bonds' first two years.

Record the interest payment and amortization on June 30, 2017.

Record the interest payment and amortization on December 31, 2017.

Explanation / Answer

01-Jan-17 Cash 570443 Discount on issue of bond 69557                Bonds payable 640000 Total bond interest expense 8 payments of (640000*8.5%*1/2)= 27200 217600 Par value of maturity 640000 Total repaid 857600 Less Amount borrowed 570443 Total bond interest expense 287157 Straight line amortozation Discount amortized Unamortized discount carrying value 01-01-2017 69557 570443 30-06-2017 8694.63 60862.38 579137.63 31-12-2017 8694.63 52167.75 587832.25 30-06-2018 8694.63 43473.13 596526.88 31-12-2018 8694.63 34778.50 605221.50 30-06-2017 Interest expense 35894.63               Discount on issue of bond 8694.63               Cash 27200 31-12-2017 Interest expense 35894.63               Discount on issue of bond 8694.63               Cash 27200

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