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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Preparing a Bond Amortization Table (Straight Line)

Dalton Company issued 5-year, 7.5% bonds with a total face value of $900,000 on January 1, 2020, for $950,000. The bonds pay interest on June 30 and December 31 of each year.

Required:

  1. Prepare an amortization table
  2. Prepare the entries to recognize the interest payments made on June 30, 2020, and December 31. 2020.

To determine

Concept introduction:

Bonds:

Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date.

Amortization of Bonds premium or discount:

Bonds may be issued at a premium or discount. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.

Requirement 1:

To prepare:

The bond amortization table using the straight line method.

Explanation

The bond amortization table using the straight line method is explained as follows:

Dalton Company
Amortization Table
Straight line method
Date Cash Payment (Credit) Interest Expense (Debit) Premium on Bonds Payable (Debit) Premium on Bonds Payable Balance Carrying Value
A=900000*7.5%/2 B=A-C C = 50000/10 D = D-C F = 900000+D
Jan. 1, 2020 $ - $ - $ - $ 50,000 $ 950,000
June. 30, 2020 $ 33,750 $ 28,750 $ 5,000 $ 45,000 $ 945,000
Dec. 31, 2020 $ 33,750 $ 28,750 $ 5,000 $ 40,000 $ 940,000
June...
To determine

Concept introduction:

Bonds:

Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date.

Amortization of Bonds premium or discount:

Bonds may be issued at a premium or discount. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.

Requirement 2:

To prepare:

The journal entries for interest as on June 30, 2020 and Dec. 31, 2020.

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