P15-9A Prepare entries to record issuance of bonds, payment of interest, and amortization of bond premium using effective interest method
On July 1, 2017, Flanagin Corporation issued $2,000,000, 10%, 10-year bonds at $2,271,813. This price resulted in an effective-interest rate
of 8% on the bonds. Flanagin uses the effective-interest method to amortize bond premium or discount. The bond pays annual interest
on January 1.
Instructions
(Round all computations to the nearest dollar.)
(a) Prepare the journal entry to record the issuance of the bonds on July 1, 2017.
(b) Prepare an amortization table through December 31, 2020 (4 interest periods), for this bond issue.
(c ) Prepare the journal entry to record the accrual of interest and the amortization of the premium on December 31 2017.
(d) Prepare the journal entry to record the payment of interest and the amortization of the premium on January 1, 2018,
(e ) Prepare the journal entry to record the accrual of interest and the amortization of the premium on December 31, 2018.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
(a) July 1 Value Value
Value
(b)
(A) (B) (C ) (D) (E )
Premium Unamortized Bond Carrying
Annual Interest to Interest Amortization Premium Value
Interest Period
Be Paid Expense (A ) – (B) (D) – (C ) ($2,000,000 +D)
Issue date $271,813 $2,271,813
2017 $100,000 ? ? ? ?
2018 200,000 ? ? ? ?
2019 200,000 ? ? ? ?
2020 200,000 ? ? ? ?
(c ) Dec 31 Value
Value Value
(d) Jan 1 Value Value
(e ) Dec 31 Value
Value Value
After you have completed the requirements of P15-9A, consider the additional question.
Answers are on the other tab in this file.
1. Assume the term of the bonds changed to 5 years and the cash proceeds from sale changed to $2,162,210 .
Revise the amortization schedule and all journal entries as appropriate.
Account
Account
Account
10% Bonds Issued at 8%
FLANAGIN CORPORATION
Bond Premium Amortization
Account
Account
Account
Effective-Interest Method -Annual Interest Payments
2017
2018
2017
Account
Account
Account
Account
Account
P15-9A Solution
(a) July 1 2,271,813 2,000,000
(b)
(A) (B) (C ) (D) (E )
Premium Unamortized Bond Carrying
Annual Interest to Interest Amortization Premium Value
Interest Period
Interest Expense
Premium on Bonds Payable
Be Paid Expense (A ) – (B) (D) – (C ) ($2,000,000 +D)
Issue date $271,813 $2,271,813
2017 $100,000 $90,873 9,127 262,686 $2,262,686
(d) Jan 1 100,000 100,000
2017
2017
2018
Effective-Interest Method -Annual Interest Payments
10% Bonds Issued at 8%
Cash
FLANAGIN CORPORATION
Bond Premium Amortization
Interest Payable
Cash
Bonds Payable
Premium on Bonds Payable
Bonds Payable
Premium on Bonds Payable
Premium on Bonds Payable
Interest Payable
Interest Payable
Interest Expense
Premium on Bonds Payable
P15-9A Solution to additional question
1. Assume the term of the bonds changed to 5 years and the cash proceeds from sale changed to $2,162,210 .
Revise the amortization schedule and all journal entries as appropriate.
(a) July 1 2,162,210 2,000,000
(b)
(A) (B) (C ) (D) (E )
Premium Unamortized Bond Carrying
Semi-annual Interest to Interest Amortization Premium Value
Interest Periods Be Paid Expense (A ) – (B) (D) – (C ) ($2,000,000 +D)
Issue date $162,210 $2,162,210
2017 $100,000 86,488 13,512 148,698 2,148,698
(c ) Dec 31 86,488
(d) Jan 1 100,000 100,000
Bond Premium Amortization
2017
Cash
FLANAGIN CORPORATION
Effective-Interest Method -Annual Interest Payments
10% Bonds Issued at 8%
Interest Expense
2018
Interest Payable
Cash
2017