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Effective interest amortization of bond premium

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Question 1: (1 point)

Exercise 14-5B: Effective interest amortization of bond premium L.O. P3
Dell Co. issues bonds dated January 1, 2009, with a par value of $450,000. The bonds' annual contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The bonds mature in three years. The annual market rate at the date of issuance is 8%, and the bonds are sold for $461,795. Use the effective interest method to amortize the premium for these bonds like the one in Exhibit 14B.2. (Make sure that the unamortized premium is adjusted to "0" in the last period. Round your answers to the nearest dollar amount. Omit the "$" sign in your response.)

Semiannual Interest Period-End Cash Interest Paid Bond Interest Expense Premium Amortization Unamortized Premium Carrying Value
1/01/2009 $ ____________ $ ____________
6/30/2009 $ ____________ $ ____________ $ ____________ ____________ ____________
12/31/2009 ____________ ____________ ____________ ____________ ____________
6/30/2010 ____________ ____________ ____________ ____________ ____________
12/31/2010 ____________ ____________ ____________ ____________ ____________
6/30/2011 ____________ ____________ ____________ ____________ ____________
12/31/2011 ____________ ____________ ____________ ____________ ____________
$ ____________ $ ____________ $ ____________
________________________________________

________________________________________
Question 2: (1 point)

Exercise 14-14: Installment note with equal total payments L.O. C1, P5
On January 1, 2009, American Eagle borrows $90,000 cash by signing a four-year, 5% installment note. The note requires four equal total payments of accrued interest and principal on December 31 of each year from 2009 through 2012.

Requirement 1:
Compute the amount of each of the four equal total payments. Use the present value Table B.3. (Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)

Amount of each payment $ ____________

Requirement 2:
Prepare an amortization table for this installment note. (Please calculate interest expense in the final period as the amount of cash minus the amount of the Beginning balance. Leave no cells blank - be certain to enter "0" wherever required. Round your answers to the nearest dollar amount. Omit the "$" sign in your response.)

Payments
Period Ending Date Beginning Balance Debit Interest Expense Debit Notes Payable Credit Cash Ending Balance
2009 $ ____________ $ ____________ $ ____________ $ ____________ $ ____________
2010 ____________ ____________ ____________ ____________ ____________
2011 ____________ ____________ ____________ ____________ ____________
2012 ____________ ____________ ____________ ____________ ____________
$ ____________ $ ____________ $ ____________
________________________________________

Question 3: (1 point)

Exercise 14-15: Installment note entries L.O. P5
On January 1, 2009, American Eagle borrows $90,000 cash by signing a four-year, 5% installment note. The note requires four equal total payments of accrued interest and principal on December 31 of each year from 2009 through 2012. Use the present value Table B.3. Prepare the journal entries for American Eagle to record the loan on January 1, 2009, and the four payments from December 31, 2009, through December 31, 2012. (Round your table value to 4 decimal places. Round your answers to nearest dollar. Omit the "$" sign in your response.)

Date General Journal Debit Credit
Jan. 1, 2009 __________ ____________
__________ ____________

Dec. 31, 2009 __________ ____________
__________ ____________
__________ ____________

Dec. 31, 2010 __________ ____________
__________ ____________
__________ ____________

Dec. 31, 2011 __________ ____________
__________ ____________
__________ ____________

Dec. 31, 2012 __________ ____________
__________ ____________
__________ ____________
________________________________________

________________________________________
Question 4: (1 point)

Problem 14-1A: Computing bond price and recording issuance L.O. P1, P2, P3
Harvard Research issues bonds dated January 1, 2009, that pay interest semiannually on June 30 and December 31. The bonds have a $45,000 par value and an annual contract rate of 6%, and they mature in six years.

Required:
For each of the following three separate situations, (a) determine the bonds' issue price on January 1, 2009, and (b) prepare the journal entry to record their issuance.

1. The market rate at the date of issuance is 4%. Use the present value Table B.1 and Table B.3. (Round your table values to 4 decimal places. Round your answers to the nearest dollar amount. Omit the "$" sign in your response.)

(a)

Cash Flow Amount Table Value Present Value
Par value $ ____________ ____________ $ ____________
Interest (annuity) ____________ ____________ ____________
Price of bonds $ ____________
________________________________________

(b)

Date General Journal Debit Credit
Jan. 1, 2009 __________ ____________
__________ ____________
__________ ____________
________________________________________

2. The market rate at the date of issuance is 6%. Use the present value Table B.1 and Table B.3. (Round your table values to 4 decimal places. Round your answers to the nearest dollar amount. Omit the "$" sign in your response.)

(a)

Cash Flow Amount Table Value Present Value
Par value $ ____________ ____________ $ ____________
Interest (annuity) ____________ ____________ ____________
Price of bonds $ ____________
________________________________________

(b)

Date General Journal Debit Credit
Jan. 1, 2009 __________ ____________
__________ ____________
________________________________________

3. The market rate at the date of issuance is 8%. Use the present value Table B.1 and Table B.3. (Round your table values to 4 decimal places. Round your answers to the nearest dollar amount. Omit the "$" sign in your response.)

(a)

Cash Flow Amount Table Value Present Value
Par value $ ____________ ____________ $ ____________
Interest (annuity) ____________ ____________ ____________
Price of bonds $ ____________
________________________________________

(b)

Date General Journal Debit Credit
Jan. 1, 2009 __________ ____________
__________ ____________
__________ ____________
________________________________________

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Solution Summary

Effective interest amortization of bond premiums are examined.

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