On 10/1/2016, Hamilton Corporation issued $1 million of 13.5% bonds for $985,071

Question

On 10/1/2016, Hamilton Corporation issued $1 million of 13.5% bonds for $985,071.68. The bonds are due in 4 years, and pay interest semiannually on March 31 and September 30. Assume an effective yield rate of 14%.

Use the spreadsheet found in the link at the bottom to prepare a bond interest expense and discount amortization schedule using the straight-line method.

Use the attached spreadsheet to prepare a bond interest expense and discount amortization schedule using the effective interest method.

Prepare any adjusting entries for the end of the fiscal year December 31, 2016, using the:

1.) Straight-line method of amortization

2.) Effective interest method of amortization

Assume the company retired the bonds on June 30, 2017, at 98 plus accrued interest. Prepare the journal entries to record the bond retirement using the:

1.) Straight-line method of amortization

2.) Effective interest method of amortization

Date    Cash Paid    Interest Expense Discount Amortization    Carrying Amount of Bonds

Explanation / Answer

Discount on issue of bond = Face Value - Issue Price = 1,000,000-985,071.68 =$14,928.32

Journals:

Straight Line Method Date    Cash Paid    Interest Expense Discount Amortization    Carrying Amount of Bonds (1000,000*13.50%*(6/12) (Cash Paid+Discount amortization) (Discount on issue/number of period) = (14928.32/(4*2)) (previous period carrying amount+current period discount amortization) 10/01/2016 985,071.68 03/31/2017 67,500.00 69,366.04 1,866.04 986,937.72 09/30/2017 67,500.00 69,366.04 1,866.04 988,803.76 03/31/2018 67,500.00 69,366.04 1,866.04 990,669.80 09/30/2018 67,500.00 69,366.04 1,866.04 992,535.84 03/31/2019 67,500.00 69,366.04 1,866.04 994,401.88 09/30/2019 67,500.00 69,366.04 1,866.04 996,267.92 03/31/2020 67,500.00 69,366.04 1,866.04 998,133.96 09/30/2020 67,500.00 69,366.04 1,866.04 1,000,000.00

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