A company issued 10%, 5-year bonds with a par value of $2,000,000, on January 1. Interest is to be paid semiannually each June 30 and December 31. The bonds were sold at $2,162,290 based on an annual market rate of 8%. The company uses the effective interest method of amortization.(1) Prepare an amortization table for the first two semiannual payment periods using the format shown below.SemiannualInterestPeriodCashInterestPaidBondInterestExpensePremiumAmortizationUnamortizedPremiumCarryingValue??????????????????(2) Prepare the journal entry to record the first semiannual interest payment.
What will be an ideal response?
(1)
| Semiannual Interest Period | Cash Interest Paid | Bond Interest Expense | Premium Amortization | Unamortized Premium | Carrying Value |
| 06/30 | $100,000.00 | $86,491.60 | $13,508.40 | $148,781.60 | $2,148,781.60 |
| 12/31 | 100,000.00 | 85,951.26 | 14,048.74 | 134,732.86 | 2,134,732.86 |
Cash payment: $2,000,000 * 10% * 1/2 year = $100,000.00
Interest expense: $2,162,290 * 8% * 1/2 year = $86,491.60
Premium amortized: $100,000 - $86,491.60 = $13,508.40
Unamortized premium: ($2,162,290 - $2,000,000) - $13,508.40 = $148,781.60
Carrying value: $2,000,000 + $148,781.60 = $2,148,781.60
12/31
Cash payment: $2,000,000 * 10% * 1/2 year = $100,000.00
Interest expense: $2,148,781.60 * 8% * 1/2 year = $85,951.26
Premium amortized: $100,000 - $85,951.26 = $14,048.74
Unamortized premium: $148,781.60 - $14,048.74 = $134,732.86
Carrying value: $2,000,000 + $134,732.86 = $2,134,732.86
(2)
| 6/30 | Bond Interest Expense | 86,491.60 | ? |
| ? | Premium on Bonds Payable | 13,508.40 | ? |
| ? | Cash | ? | 100,000.00 |
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