Question

PROBLEM 1 On December 31, 2018, Edmand, Inc., issued $750,000 of 11 percent, five-year bonds for $722,400, yielding an effective interest rate of 12 percent. Semiannual interest is payable on June 30 and December 31 each year. The firm uses the effective interest method to amortize the discount. Required: a. Prepare an amortization schedule showing the necessary information for the first two interest periods. Round amounts to the nearest dollar. b. Prepare the journal entry for the bond issuance on December 31. c. Prepare the journal entry to record bond interest expense and discount amortization at June 30 of the following year. d. Prepare the journal entry to record bond interest expense an discount amortization at December 31 of the following year.

          PROBLEM 1
On December 31, 2018, Edmand, Inc., issued $750,000 of 11 percent, five-year bonds for
$722,400, yielding an effective interest rate of 12 percent. Semiannual interest is payable on June
30 and December 31 each year. The firm uses the effective interest method to amortize the
discount.
Required:
a. Prepare an amortization schedule showing the necessary information for the first two
interest periods. Round amounts to the nearest dollar.
b. Prepare the journal entry for the bond issuance on December 31.
c. Prepare the journal entry to record bond interest expense and discount amortization at
June 30 of the following year.
d. Prepare the journal entry to record bond interest expense an discount amortization at
December 31 of the following year.

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PROBLEM 1
On December 31, 2018, Edmand, Inc., issued 750,000 of 11 percent, five-year bonds for722,400, yielding an effective interest rate of 12 percent. Semiannual interest is payable on June
30 and December 31 each year. The firm uses the effective interest method to amortize the
discount.
Required:
a. Prepare an amortization schedule showing the necessary information for the first two
interest periods. Round amounts to the nearest dollar.
b. Prepare the journal entry for the bond issuance on December 31.
c. Prepare the journal entry to record bond interest expense and discount amortization at
June 30 of the following year.
d. Prepare the journal entry to record bond interest expense an discount amortization at
December 31 of the following year.

Added by Heather R.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

Instant Answer

Solved by Expert Supreeta N

06/26/2023

Step 1

On December 31, 2018, Edmand, Inc., issued $750,000 of 11 percent, five-year bonds for $722,400, yielding an effective interest rate of 12 percent. Semiannual interest is payable on June 30 and December 31 each year. Show more…

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Transcript

00:03 Hello students, in this question we have to prepare amortization schedule journal entry.

00:07 So, first of all we are preparing amortization schedule.

00:10 So, it is as date, cash interest, interest expense, discount amortization and carrying value.

00:22 So, here date will come, cash interest, interest expense, discount amortization which is this a and b, b -a and carrying value.

00:45 So, first date is 12 -31 -18.

00:49 So, the carrying value is $722400.

00:57 So, on this carrying value 6 -3 -0 -19 may because for 6 months it is.

01:03 So, we will be computing the cash interest which is $750 ,000 into 5 .5 % which will give us 41250.

01:16 This is the cash interest and interest expense is 43344 which is 722400 into 6 % and discount amortization is this value minus this.

01:30 So, we get 2094 and remaining carrying value is preceding carrying value.

01:38 The 722400 minus discount amortization.

01:41 We will get 724494 which is we will add carrying value plus discount amortization and for next another 6 months it will be 12 -31 -19.

01:56 So, our value interest expense will be same here cash interest.

02:02 Interest expense will be 43470 which is the 724494 into 6 % and discount amortization is 2002.

02:20 So, upon adding this with the carrying value we get 726714.

02:26 So, this is the amortization schedule...

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