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Corporation 11
Bonds Issued at a premium
Example:-
Evermaster Corporation issued $100,000 of 8 percent term bonds on January 1, 2020, due on
January 1, 2025, with interest payable each July 1 and January 1.
the investors required an effective-interest rate of 6 percent
solution
Maturity value of bonds payable 100,000
Present value of principle
Principle x P.V. $1 (n=5 i=3%)
100,000 X 0.74409
Present value of interest payable
Interest x P.V.O.A (n=5 i=3%)
(100000 x 8% x 6/12) = 4000 X 8.53020
74.409
34,121
proceeds from sale of bonds 108,530
= Discount on bonds payable 8530
Schedule of Bond Discount Amortization
Effective Interest Method- Semiannual Interest Payments
5 year, 8% bonds to yield 10%
Date Cash
Paid
Interest
Expense
Discount
Amortized
Carrying
amount
of Bonds
1/1/20 92,278
7/1/20 4000a 3256 744 107,786
1/1/21 4000 3234 766 107,020
7/1/21 4000 3211 789 106,231
1/1/22 4000 3162 813 105,418
7/1/22 4000 3137 838 104,580
1/1/23 4000 3112 863 103,717
7/1/23 4000 3085 888 102,829
1/1/24 4000 3187 915 101,914
7/1/24 4000 3057 943 100,971
1/1/25 4000 3029 971 100,000
Corporation 12
Masterwear (Issuer) United (Investor)
(Jan. 1) Cash
premium on bonds
Bond payable
108530
8530
100,000
Investment in bonds
premium in bond invest
Cash
100,000
8530
108530
July 1, interest expense
premium on bond
Cash
3256
744
4000
Cash
Premium on bond
invest
interest revenue
4000
744
3256
Dec 1, interest expense
premium on bond
interest payable
3234
766
4,000
Interest receivable
Premium on bond inve
interest revenue
4000
766
3234
Jan. Interest payable
Cash
4,000
4,000
Cash
Interest receivable
4,000
4,000
Maturity Bonds payable
Cash
100,000
100,000
Cash
Investment in bonds
100,000
100,00
0
Example ‫السابقه‬ ‫المسأله‬ ‫علي‬
On January 1, 2023, Masterwear industries called its $100,000, The indenture specified a call price of $105,000.
Bonds Payable
Loss on early extinguishment ‫متمم‬
Premium on bond payable (100,000 – 103,717)
Cash
100,000
1283
3717 105,000
Corporation 13
Example
On January 1, 2013, Masterwear industries called its $700,000, 12% bonds when their carrying amount was
$676,288. The indenture specified a call price of $685,000.
The bonds were issued previously at a price yield 14%
Bonds Payable
Loss on early extinguishment ‫متمم‬
Discount on bond payable (700,000 – 676,288)
Cash
700,000
8712
23,712
685,000

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3.pdf

  • 1. Corporation 11 Bonds Issued at a premium Example:- Evermaster Corporation issued $100,000 of 8 percent term bonds on January 1, 2020, due on January 1, 2025, with interest payable each July 1 and January 1. the investors required an effective-interest rate of 6 percent solution Maturity value of bonds payable 100,000 Present value of principle Principle x P.V. $1 (n=5 i=3%) 100,000 X 0.74409 Present value of interest payable Interest x P.V.O.A (n=5 i=3%) (100000 x 8% x 6/12) = 4000 X 8.53020 74.409 34,121 proceeds from sale of bonds 108,530 = Discount on bonds payable 8530 Schedule of Bond Discount Amortization Effective Interest Method- Semiannual Interest Payments 5 year, 8% bonds to yield 10% Date Cash Paid Interest Expense Discount Amortized Carrying amount of Bonds 1/1/20 92,278 7/1/20 4000a 3256 744 107,786 1/1/21 4000 3234 766 107,020 7/1/21 4000 3211 789 106,231 1/1/22 4000 3162 813 105,418 7/1/22 4000 3137 838 104,580 1/1/23 4000 3112 863 103,717 7/1/23 4000 3085 888 102,829 1/1/24 4000 3187 915 101,914 7/1/24 4000 3057 943 100,971 1/1/25 4000 3029 971 100,000
  • 2. Corporation 12 Masterwear (Issuer) United (Investor) (Jan. 1) Cash premium on bonds Bond payable 108530 8530 100,000 Investment in bonds premium in bond invest Cash 100,000 8530 108530 July 1, interest expense premium on bond Cash 3256 744 4000 Cash Premium on bond invest interest revenue 4000 744 3256 Dec 1, interest expense premium on bond interest payable 3234 766 4,000 Interest receivable Premium on bond inve interest revenue 4000 766 3234 Jan. Interest payable Cash 4,000 4,000 Cash Interest receivable 4,000 4,000 Maturity Bonds payable Cash 100,000 100,000 Cash Investment in bonds 100,000 100,00 0 Example ‫السابقه‬ ‫المسأله‬ ‫علي‬ On January 1, 2023, Masterwear industries called its $100,000, The indenture specified a call price of $105,000. Bonds Payable Loss on early extinguishment ‫متمم‬ Premium on bond payable (100,000 – 103,717) Cash 100,000 1283 3717 105,000
  • 3. Corporation 13 Example On January 1, 2013, Masterwear industries called its $700,000, 12% bonds when their carrying amount was $676,288. The indenture specified a call price of $685,000. The bonds were issued previously at a price yield 14% Bonds Payable Loss on early extinguishment ‫متمم‬ Discount on bond payable (700,000 – 676,288) Cash 700,000 8712 23,712 685,000