ACTG 2011 Lecture Notes - Lecture 3: Effective Interest Rate, Interest Expense
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On January 1, 2018, White Water issues $560,000 of 6% bonds, duein 20 years, with interest payable annually on December 31 eachyear.
Assuming the market interest rate on the issue date is 5%, thebonds will issue at $629,789.
Required:
1. Complete the first three rows of an amortizationtable.
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2. Record the journal entries for bond issue onJanuary 1, 2018, and the first two interest payments on December31, 2018, and December 31, 2019.
MacBride Enterprises sold $200,000 of bonds on December 31, 2018. A portion of the amortization table appears below.
Period | Cash Payment (Credit) | Interest Expense (Debit) | Premium on Bonds Payable (Debit) | Premium on Bonds Payable Balance (Credit) | Bond Payable Carrying Value (Credit) | |||||
At issue | $6,457 | $206,457 | ||||||||
06/30/19 | $9,000 | $8,465 | $535 | 5,922 | 205,922 | |||||
12/31/19 | 9,000 | 8,443 | 557 | 5,365 | 205,365 | |||||
06/30/20 | 9,000 | 8,420 | 580 | 4,785 | 204,785 | |||||
12/31/20 | ? | ? | ? | ? | ? |
Required:
1. Indicate the stated annual interest rate on these bonds.
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2. Calculate the effective annual interest rate on these bonds. (Note: Round to the nearest 0.1%.)
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3. Determine the interest expense and premium amortization for the interest period ending December 31, 2020. (Note: Round to the nearest dollar.)
Period | Cash Payment (Credit) | Interest Expense (Debit) | Premium on Bonds Payable (Debit) | Premium on Bonds Payable Balance (Credit) | Bond Payable Carrying Value (Credit) | ||||||||||||||||||||
At issue | $6,457 | $206,457 | |||||||||||||||||||||||
6/30/19 | $9,000 | $8,465 | $535 | 5,922 | 205,922 | ||||||||||||||||||||
12/31/19 | 9,000 | 8,443 | 557 | 5,365 | 205,365 | ||||||||||||||||||||
6/30/20 | 9,000 | 8,420 | 580 | 4,785 | 204,785 | ||||||||||||||||||||
12/31/20 |
Chekhov Company sold $200,000 of bonds on December 31, 2018. A portion of the amortization table appears below.
Period | Cash Payment (Credit) | Interest Expense (Debit) | Discount on Bonds Payable (Credit) | Discount on Bonds Payable Balance (Debit) | Bond Payable Carrying Value (Credit) |
At issue | $8,000 | $192,000 | |||
6/30/2019 | $12,000 | $12,800 | $800 | 7,200 | $192,800 |
12/31/2019 | 12,000 | 12,800 | 800 | 6,400 | 193,600 |
6/30/2020 | ? | ? | ? | ? | ? |
Required:
1. Determine the stated interest rate on these bonds.
%