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On January 1, 2020, Aumont Company sold 12% bonds having a maturity value of $500,000 for $537,907, which provides the bondholders with a 10% yield. The bonds are dated January 1, 2020, and mature January 1, 2025, with interest payable December 31 of each year. Aumont Company allocates interest and unamortized discount or premium on the effective-interest basis.
a. Prepare the journal entry at the date of the bond issuance. (Round answer to 0 decimal places, e.g. 38,548.
b. Prepare a schedule of interest expense and bond amortization for 2020–2022.
c. Prepare the journal entry to record the interest payment and the amortization for 2020.
d. Prepare the journal entry to record the interest payment and the amortization for 2022.

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anthougo

a. The preparation of the journal entry for the bond issuance by Aumont Company is as follows:

January 1, 2020:

Debit Cash $537,907

Credit Bonds Payable $500,000

Credit Bonds Premium $37,907

  • To record the bond issuance.

b. The preparation of the schedule of interest expense and bond amortization for 2020 - 2022 is as follows:

Annual Amortization Schedule

Period     PV     Annual PMT  Interest Exp.  Amortization   FV

1        $537,907   $60,000      $53,791         $6,209    $531,698

2       $531,698      60,000  $53,170            6,830     524,868

3      $524,868      60,000 $52,487            7,513       517,355

c. The preparation of the journal entry to record the interest payment and amortization of bond premium for 2022 is as follows:

Debit Interest Expense $52,487

Debit Premium Amortization$7,513

Credit Cash $60,000

  • To record the interest expense and amortization for 2022.

Data and Calculations:

Face value of bonds = $500,000

Price of bonds = $537,907

Premium = $37,907

Coupon interest rate = 12% per year

Market interest rate = 10% per year

December 31, 2020:

Interest expense = $53,791 ($537,907 x 10%)

Interest payment = $60,000 ($500,000 x 12%)

Premium amortization = $6,209 ($60,000 - $53,791)

Value of bonds = $531,698 ($537,907 - $6,209)

Interest Expense $53,791 Premium Amortization$6,209 Cash $60,000

December 31, 2021:

Interest expense = $53,170 ($531,698 x 10%)

Interest payment = $60,000 ($500,000 x 12%)

Premium amortization = $6,830 ($60,000 - $53,170)

Value of bonds = $524,868 ($531,698 - $6,830)

Interest Expense $53,170 Premium Amortization$6,830 Cash $60,000

December 31, 2022:

Interest expense = $52,487 ($524,868 x 10%)

Interest payment = $60,000 ($500,000 x 12%)

Premium amortization = $7,513 ($60,000 - $52,487)

Value of bonds = $517,355 ($524,868 - $7,713)

Learn more about recording bond issuance and amortization at https://brainly.com/question/25524725

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