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Bond amortization under straight-line method

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Straight-line amortization of both
bond discount and bond premium
P1 P2 P3
Heathrow issues $2,000,000 of 6%, 15-year bonds dated January 1, 2004, that pay interest semiannually
on June 30 and December 31. The bonds are issued at a price of $1,728,224.
1. Prepare the January 1, 2004, journal entry to record the bonds' issuance.
2. For each semiannual period, compute (a) the cash payment, (b) the straight-line discount amortization,
and (c) the bond interest expense.
3. Determine the total bond interest expense to be recognized over the bonds' life.
4. Prepare the first two years of an amortization table like Exhibit 14.7 using the straight-line method.
5. Prepare the journal entries to record the first two interest payments.
6. Assume that the bonds are issued at a price of $2,447,990. Repeat parts 1 through 5.


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Solution Preview

Please see the attached file
General Journal
Part 1.
Date Account Titles no. Debit Credit
Jan 1 Cash 1,728,224
Discount on Bonds Payable 271,776
Bonds Payable 2,000,000

Part 2.

Cash payment $60,000
Straight-line discount amortization 9,059 Over the life of the bond
Bond interest expense 69,059

Part 3.

Thirty payments of $60,000 $1,800,000
Par value at maturity 2,000,000
Total repaid $3,800,000
Less amount borrowed 1,728,224
Total bond interest expense $2,071,776 «- Correct!


Thirty payments of $60,000 $1,800,000
Plus discount 271,776
Total bond interest expense $2,071,776 «- Correct!

Part ...

Solution Summary

The solution explains how to calcualate the amortization under discount and premium and the related journal entries

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Crystal Corporation bond amortization effective int & SL methods

On January 1, 2014, Crystal Corporation issued a $100,000 10-year bonds at 11%. Interest is paid annually on December 31. The bonds were sold for $94,349 and the yield is 12%.
Prepare an amortization schedule that determines interest at the effective interest rate.
Prepare an amortization schedule by the straight-line method.
Prepare the journal entries to record interest expense on December 31, 2016, by each of the two methods.
Explain why the pattern of interest differs between the two methods.
Assume the market rate is still 12%, what price would a second investor pay the first investor on December 31, 2016 for $35,000 of the bonds?

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