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Bond amortization schedule

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On January 1, 2013, Slapshots issued $200,000 bonds with an 8% stated interest rate. The bonds pay interest on June 30 and December 31. The bonds are due on December 31, 2022.

1. Assume the bonds were sold for $175,075.58 to yield 10%. Prepare a bond amortization schedule for the first year of the bond life using the effective-interest method. Round calculations to the nearest dollar.

2. Prepare the journal entry for paying interest on December 31, 2013.

3. Why did these bonds originally sell at discount?

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See the attached file. Thanks

Part 1
Face Value of Bind $200,000
Coupon Rate 8.00%
Discount Rate 10%
Coupon Payments per year 2
Time to maturity 10 years

PV of the principal repayment ` $ 75,377.90
PV of the semi-annual coupon interest payments $ 99,697.68
Issue ...

Solution Summary

This post shows how to calculate the bond amortization schedule and journal entries during the first year.

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A company issued 10%, 10-year, $10,000,000 par value bonds that pay interest semiannually on April 1 and October 1. The bonds are dated April 1, 2004 and are issued on that date. The market rate of interest for such bonds on April 1, 2004 is 8%. The company uses the effective interest rate method of amortization.

1. Prepare a bond amortization schedule.
2. Prepare all journal entries made for the issuance of the bonds, and the October 1, 2006 and April 1, 2008 interest payments.
3. Prepare the adjusting entry on December 31, 2012.
4. Assume that 50% of the bonds are called on October 2, 2012 at 98. Make the necessary journal entries. (Do not accrue interest for one day).
5. Assume that the market rate was 12% when the bonds were issued. Make the necessary journal entry to record the issuance of the bonds.

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