A Company Issued 10%, 5-Year Bonds with a Par Value

question 28

Essay

A company issued 10%, 5-year bonds with a par value of $2,000,000, on January 1, 2010. Interest is to be paid semiannually each June 30 and December 31. The bonds were sold at $2,162,290 to yield the buyers an 8% annual return. 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.
$$\begin{array} { | c | c | c | c | c | c | } \hline \begin{array} { c } \text { Semiannual } \\\text { Interest } \\\text { Period }\end{array} & \begin{array} { c } \text { Cash Interest } \\\text { Paid }\end{array} & \begin{array} { c } \text { Bond Interest } \\\text { Expense }\end{array} & \begin{array} { c } \text { Premium } \\\text { Amortization }\end{array} & \begin{array} { c } \text { Unamortized } \\\text { Premium }\end{array} & \begin{array} { c } \text { Carrying } \\\text { Value }\end{array} \\\hline\end{array}$$
(2) Prepare the general journal entry to record the first semiannual interest payment.

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Definitions:

Financial Foundation

The basic financial resources, systems, and principles that support and sustain an individual's or organization’s economic stability and growth.

Equity Dilution

The decrease in existing shareholders' ownership percentages of a company as a result of the company issuing more shares.

Entrepreneurial Finance

The study and practice of financial management and funding strategies specific to entrepreneurship and startups.

Central Issues

The core or primary concerns, problems, or topics within a discussion context.