CPA Week 3 Exercise 14-10 Bond Amortization Tables On January 1, 2016, Calvert C

Question

CPA Week 3 Exercise 14-10

Bond Amortization Tables

On January 1, 2016, Calvert Company issues 12%, $100,000 face value bonds for $103,545.91, a price to yield 10%. The bonds mature on December 31, 2017. Interest is paid semiannually on June 30 and December 31.

REQUIRED:

1. Prepare a bond interest expense and premium amortization schedule using the straight-line method.

2. Prepare a bond interest expense and premium amortization schedule using the effective interest method.

3. Prepare the journal entries to record the interest payment on June 30, 2016, and December 31, 2016, using both methods.

Explanation / Answer

1) Premium amortization Schedule using Straight line method amortization of premium = 3,545.91/4 886.48 year cash interest premium Carrying interest expense amortized value 1/1/2016 103,545.91 6/30/2016 6,000 5,113.52 886.48 102659.43 12/31/2016 6,000 5,113.52 886.48 101772.95 6/30/2017 6,000 5,113.52 886.48 100886.47 12/31/2017 6,000 5113.53 886.47 100000 cash interest = 100,000*6% 2) Effective interest method year cash interest premium Carrying interest expense amortized value 6% 5% 1/1/2016 103,545.91 6/30/2016 6,000 5,177.30 822.70 102,723.21 12/31/2016 6,000 5,136.16 863.84 101859.37 6/30/2017 6,000 5,092.97 907.03 100952.33 12/31/2017 6,000 5047.67 952.33 100000.00 3) Journal entries Date Accounting titles & Explanations Debit Credit 6/30/2016 interest expense 5,113.52 premium on bonds payable 886.48 cash 6,000 12/31/2016 interest expense 5,113.52 premium on bonds payable 886.48 cash 6,000 Effective interest method 6/30/2016 interest expense 5,177.30 premium on bonds payable 822.7 cash 6,000 12/31/2016 interest expense 5,136.16 premium on bonds payable 863.84 cash 6,000 (round answers if required)

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