Answer:
Dr Cash $270,000
Dr discount on bonds payable($300,000-$270,000) $30,000
Cr bonds payable $300,000
Explanation:
First and foremost we need to determine the yield to maturity on this bond using rate formula in excel:
=rate(nper,pmt,-pv,fv)
nper is the number of interest payments the bond would make,which is 2
years multiplied 2 since interest is paid twice i.e nper is 4
pmt is the semiannual interest payable =$300,000*6%*6/12=$9000
pv is the current price of $270,000
fv is the face value of $300,000
=rate(4,9000,-270000,300000)=5.88%
5.88% is the semiannual rate
5.88%*2=11.76% is the annual yield
The annual yield is made use of in the attached amortization schedule.
1. The journal entry to record the Bonds Issuance on January 1, 2020, is as follows:
Debit Cash $270,000
Debit Bond Discounts $30,000
Credit Bonds Payable $300,000
To record the issuance of the bonds.
2. The completion of the Amortization Schedule is as follows:
Period ended Cash Paid Interest Expense Amortization Carrying amount
01/01/2020 $270,000
06/30/2020 $9,000 $16,500 $7,500 277,500
12/31/2020 $9,000 $16,500 $7,500 285,000
06/30/2021 $9,000 $16,500 $7,500 292,500
12/31/2021 $9,000 $16,500 $7,500 $300,000
Data and Calculations:
Face value of bonds = $300,000
Bonds Proceeds = $270,000
Bonds Discounts = $30,000 ($300,000 - $270,000)
Maturity period = 2 years
Coupon interest rate = 6%
Interest payment = semi-annually on June 30 and December 31
Amortization method = Straight-line
Semi-annual amortization = $7,500 ($30,000/4)
Cash payment = $9,000 ($300,000 x 6% x 1/2)
Interest Expense = $16,500 ($9,000 + $7,500)
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