Appendix 2 EX 14-24 Amortize premium by interest method Shunda Corporation whole

Question

Appendix 2 EX 14-24 Amortize premium by interest method Shunda Corporation wholesales parts to appliance manufacturers. On January 1, Year Shunda Corportion issued $22,000,000 of five-year, 9 % bonds at a market (effective terest rate of 7%, receiving cash of $23,829,684. Interest is payable semiannually. S Corporation's fiscal year begins on January 1. The company uses the interest method a. Journalize the entries to record the following: 1. Sale of the bonds. 2. First semiannual interest payment, including amortization of premium. Round to the nearest dollar. 3. Second semiannual interest payment, including amortization of premium. Round to the nearest dollar. b. Determine the bond interest expense for the first year. c. Explain why the company was able to issue the bonds for $23,829,684 rather than for the face amount of $22,000,000. Appendix 1 and Appendix 2 EX 14-25 Compute bond proceeds, amortizing premium by interest method, and interest expense

Explanation / Answer

Bond premium amortization schedule is given below:

Interest expense is calculated on the balance of bond outstanding (Face value + premium) @3.5% every six months.

a.

b.

Bond interest expense for the firt year = $1,662,619

c.

The company was able to issue the bonds for $23,829,684 rather than the face value $22,000,000 as the company was offering interest at 9% which is higher than the market rate of interest of 7%.

Date Cash Interest Bond Premium amortized Bond Bond Face Paid Expense Premium Value Value 1/1/year1 1829684.00 23829684.00 22000000.00 7/1/year1 990000.00 834038.94 155961.06 1673722.94 23673722.94 22000000.00 1/1/year2 990000.00 828580.30 161419.70 1512303.24 23512303.24 22000000.00 7/1/year2 990000.00 822930.61 167069.39 1345233.86 23345233.86 22000000.00 1/1/year3 990000.00 817083.18 172916.82 1172317.04 23172317.04 22000000.00 7/1/year3 990000.00 811031.10 178968.90 993348.14 22993348.14 22000000.00 1/1/year4 990000.00 804767.18 185232.82 808115.32 22808115.32 22000000.00 7/1/year4 990000.00 798284.04 191715.96 616399.36 22616399.36 22000000.00 1/1/year5 990000.00 791573.98 198426.02 417973.34 22417973.34 22000000.00 7/1/year5 990000.00 784629.07 205370.93 212602.40 22212602.40 22000000.00 1/1/year6 990000.00 777441.08 212602.41 0.00 22000000.00 22000000.00

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