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