PART 2 (16 marks):
On December 31, 2020, when the market rate was 10%, West End Corp. issued $5,000,000,
12%, 5-year bonds. Interest is payable semiannually on June 30 and December 31. The bonds
were issued for $5,386,087, and the corporation uses the effective interest method of amortizing
any bond premium or discount.
REQUIRED:
(a) Complete the amortization table below for the first two periods only. (USE EXCEL
TEMPLATE TO COMPLETE YOUR ANSWER)
Premium/
Period
Cash interest
Interest
Discount
Carrying value
ending
paid
expense
Amortization
Dec. 31/20
June 30/21
Dec. 31/21
(b) Prepare the journal entries to record the issue of the bonds and the first
interest payment.
(c) West End Corp. retires its bonds on December 31, 2024 for cash of
$5,090,000. At that date the bonds have a carrying value of $5,092,971.
Prepare the journal entry to retire the bonds on December 31, 2024.