On 1-1-2014 Avion, Inc. Sold Bonds with these particulars: Face amt. of Bonds 42

Question

On 1-1-2014 Avion, Inc. Sold Bonds with these particulars: Face amt. of Bonds        425,000 Matures on 1-1-2024, in 10 yrs. Stated annual rate of int. 7.75% Effective annual rate of interest 10.00% Int. is paid every six months; 6-30, 12-31 Req. 1, Assume the effective Interest Method in accounting for these Bonds, build a 10 year amortization table Req. 2, Give General Journal entries to record the sale of the bonds, and the 1st 4 interest payments On 1-1-2014 Avion, Inc. Sold Bonds with these particulars: Face amt. of Bonds        425,000 Matures on 1-1-2024, in 10 yrs. Stated annual rate of int. 7.75% Effective annual rate of interest 10.00% Int. is paid every six months; 6-30, 12-31 Req. 1, Assume the effective Interest Method in accounting for these Bonds, build a 10 year amortization table Req. 2, Give General Journal entries to record the sale of the bonds, and the 1st 4 interest payments

Explanation / Answer

1-1-2014 Issue Date
Unamortized Premium
102,813
Carrying Value
927,813

6-30-2014
(1) Cash Payment (will always be the same) 825,000 x 6%
$49,500
(2) Interest Expense (5% x previous carrying value)
$46,391
(3) Premium Amortization (1 - 2)
$3,109
(4) Unamortized Premium (Previous unamortized premium - 3)
$99,704
(5) Carrying Value (Previous carrying value - 3)
$924,704

12-31-2014
(1) Cash Payment (will always be the same) 825,000 x 6%
$49,500
(2) Interest Expense (5% x previous carrying value)
$46,235
(3) Premium Amortization (1 - 2)
$3,265
(4) Unamortized Premium (Previous unamortized premium - 3)
$96,439
(5) Carrying Value (Previous carrying value - 3)
$921,439


2. Give General Journal entries to record the sale of the bonds, and the 1st 4 interest payments
Present value of the face value (825,000) of the bond discounted at 5% for 20 accounting periods.
$310,934
Present value of the 20 payments (49,500) discounted at 5%.
$616,879

310,934 + 616,879 = $927,813 issue price
Dr Cash 927,813
Date of Issuance
Cr Bonds Payable 825,000
Cr Premium on Bonds Payable 102,813

1st payment
Dr Interest Expense 46,391
Dr Premium on Bonds Payable 3,109
Cr Cash 49,500

2nd payment
Dr Interest Expense 46,235
Dr Premium on Bonds Payable 3,265
Cr Cash 49,500

By mistake i have considered the amount 8.25 instead of 4.25 and rate 12 instead of 7.75

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