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Amortization Schedule for bond interest and amortization

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Devon Harris Company sells 10% bonds having a maturity value of $2,000,000 for $1,855,816. The bonds are dated January 1, 2007, and mature January 1, 2012. Interest payable annually on January 1.

Instructions:

Set up a schedule of interest expense and discount amoritzation under the effective interest method (Hint: the effective interest rate must be computed). Remit in excel

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Please see the attached file

We first calculate the effective rate using the RATE function in excel
Issue Price 1,855,816
Maturity 5 years
Annual Interest 200,000
Par Value 2,000,000
Effective interest rate 12%
The effective ...

Solution Summary

The solution explains how to prepare an amortization Schedule for bond interest and discount amortization.

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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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