A Company Issued 10%,10-Year Bonds with a Par Value of $1,000,000

question 98

Essay

A company issued 10%,10-year bonds with a par value of $1,000,000 on January 1,2013,at a selling price of $885,295,to yield the buyers a 12% return.The company uses the effective interest amortization method.Interest is paid semiannually each June 30 and December 31.
(1)Prepare an amortization table for the first two payment periods using the format shown below:
$\begin{array}{|c|c|c|c|c|c|}\hline\text { Semiannual }\\\text { Interest } & \text { Cash Interest } & \text { Bond Interest } & \text { Discount } & \text { Unamortized } & \text { Carrying } \\\text { Period } & \text { Paid } & \text { Expense } & \text { Amortization } & \text { Discount } & \text { Value }\\\hline\end{array}$
(2)Prepare the journal entry to record the first semiannual interest payment.

---

Definitions:

Accrual Basis

An accounting method where transactions are recorded when they are earned or incurred, regardless of when cash is exchanged.

Cash Basis

An accounting method where revenues and expenses are recorded only when cash is received or paid out.

Accounting

The systematic process of recording, measuring, and communicating financial information to help in decision-making.

Supplies Used

The amount of supplies consumed during a specific period, which may be accounted for as an expense.