PROBLEM 14-5 1. Sanford Co. Schedule of Bond Discount Amortization Effective-Interest Method 10% Bonds Sold to Yield 12% Date Cash Paid Interest Expense Discount Amortized Carrying Amount of Bonds 3/1/14 $472,090 9/1/14 $25,000* $28,325 $3,325 475,415 3/1/15 25,000 28,525 3,525 478,940 9/1/15 25,000 28,736 3,736 482,676 3/1/16 25,000 28,961 3,961 486,637 9/1/16 25,000 29,198 4,198 490,835 3/1/17 25,000 29,450 4,450 495,285 9/1/17 25,000 29,715** 4,715 500,000 *($500,000 X 10% X 1/2) **Rounded $2 3/1/14 Cash 472,090 Discount on Bonds Payable 27,910* Bonds Payable 500,000 *Maturity value of bonds payable $500,000 Present value of $500,000 due in 7 periods at 6% ($500,000 X .66506) $332,530 Present value of interest payable semiannually ($25,000 X 5.58238) 139,560 Proceeds from sale of bonds (472,090) Discount on bonds payable $ 27,910 9/1/14 Interest Expense 28,325 Discount on Bonds Payable 3,325 Cash 25,000 PROBLEM 14-5 (Continued) 12/31/14 Interest Expense 19,017 Discount on Bonds Payable ($3,525 X 4/6) 2,350 Interest Payable ($25,000 X 4/6) 16,667 3/1/15 Interest Expense 9,508 Interest Payable 16,667 Discount on Bonds Payable ($3,525 X 2/6) 1,175 Cash 25,000 9/1/15 Interest Expense 28,736 Discount on Bonds Payable 3,736 Cash 25,000 12/31/15 Interest Expense 19,308 Discount on Bonds Payable ($3,961 X 4/6) 2,641 Interest Payable 16,667 2. Titania Co. Date Cash Paid Interest Expense Premium Amortized Carrying Amount of Bonds 6/1/14 $425,853 12/1/14 $24,000 $21,293 $2,707 423,146 6/1/15 24,000 21,157 2,843 420,303 12/1/15 24,000 21,015 2,985 417,318 6/1/16 24,000 20,866 3,134 414,184 12/1/16 24,000 20,709 3,291 410,893 6/1/17 24,000 20,545 3,455 407,438 12/1/17 24,000 20,372 3,628 403,810 6/1/18 24,000 20,190** 3,810 400,000 *($400,000 X 12% X 1/2) **$.50 adjustment due to rounding. PROBLEM 14-5 (Continued) 6/1/14 Cash 425,853 Premium on Bonds Payable 25,853 Bonds Payable 400,000 Maturity value of bonds payable $400,000 Present value of $400,000 due in 8 periods at 5% ($400,000 X .67684) $270,736 Present value of interest payable semiannually ($24,000 X 6.46321) 155,117 Proceeds from sale of bonds (425,853) Premium on bonds payable $ 25,853 12/1/14 Interest Expense 21,293* Premium on Bonds Payable 2,707 Cash ($400,000 X .12 X 6/12) 24,000 12/31/14 Interest Expense ($21,157 X 1/6) 3,526 Premium on Bonds Payable ($2,843 X 1/6) 474 Interest Payable ($24,000 X 1/6) 4,000 6/1/15 Interest Expense ($21,157 X 5/6) 17,631 Interest Payable 4,000 Premium on Bonds Payable ($2,843 X 5/6) 2,369 Cash 24,000 10/1/15 Interest Expense ($21,015 X .3* X 4/6) 4,203 Premium on Bonds Payable ($2,985 X .3 X 4/6) 597 Cash 4,800 *$120,000 ÷ $400,000 = .3 PROBLEM 14-5 (Continued) 10/1/15 Bonds Payable 120,000 Premium on Bonds Payable 5,494 Gain on Redemption of Bonds 4,294* Cash 121,200 *Reacquisition price $126,000 – ($120,000 X 12% X 4/12) $121,200 Net carrying amount of bonds redeemed: Par value $120,000 Unamortized premium [.3 X ($25,853 – $2,707 – $2,843)] – $597 5,494 (125,494) Gain on redemption $ (4,294) 12/1/15 Interest Expense ($21,015 X .7*) 14,711 Premium on Bonds Payable ($2,985 X .7) 2,089 Cash ($24,000 X .7) 16,800 *($400,000 – $120,000) ÷ $400,000 = .7 12/31/15 Interest Expense ($20,866 X .7 X 1/6) 2,434 Premium on Bonds Payable ($3,134 X .7 X 1/6) 366 Interest Payable ($24,000 X .7 X 1/6) 2,800 6/1/16 Interest Expense ($20,866 X .7 X 5/6) 12,172 Interest Payable 2,800 Show More
