Ellis Company issues 8.0%, five-year bonds dated January 1, 2021, with a $530,000 par value. The bonds pay interest on June 30 and December 31 and are issued at a price of $540,871. The annual market rate is 7.5% on the issue date. Required: 1. Compute the total bond interest expense over the bonds' life. 2. Prepare an effective interest amortization table for the bonds' life. 3. Prepare the journal entries to record the first two interest payments. Required 1 Compute the total bond interest expense over the bonds' life. Total bond interest expense over life of bonds: Amount repaid: payments of Par value at maturity Total repaid Less amount borrowed Total bond interest expense Required 2: Prepare an effective interest amortization table for the bonds’ life. (Round your intermediate and final answers to the nearest whole dollar.) Semiannual Interest Period-End Cash Interest Paid Bond Interest Expense Premium Amortization Unamortized Premium Carrying Value 01/01/2021 06/30/2021 12/31/2021 06/30/2022 12/31/2022 06/30/2023 12/31/2023 06/30/2024 12/31/2024 06/30/2025 12/31/2025 Total Required 3: Date General Journal Debit Credit June 30, 2021 Date General Journal Debit Credit December 31, 2021
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Ellis Company issues 8.0%, five-year bonds dated January 1, 2021, with a $530,000 par value. The bonds pay interest on June 30 and December 31 and are issued at a price of $540,871. The annual market rate is 7.5% on the issue date.
Required:
1. Compute the total bond interest expense over the bonds' life.
2. Prepare an effective interest amortization table for the bonds' life.
3. Prepare the
Required 1
Compute the total bond interest expense over the bonds' life.
Total bond interest expense over life of bonds:
Amount repaid:
payments of
Par value at maturity
Total repaid
Less amount borrowed
Total bond interest expense
Required 2:
Prepare an effective interest amortization table for the bonds’ life. (Round your intermediate and final answers to the nearest whole dollar.)
Semiannual Interest Period-End Cash Interest Paid Bond Interest Expense Premium Amortization Unamortized Premium Carrying Value
01/01/2021
06/30/2021
12/31/2021
06/30/2022
12/31/2022
06/30/2023
12/31/2023
06/30/2024
12/31/2024
06/30/2025
12/31/2025
Total
Required 3:
Date General Journal Debit Credit
June 30, 2021
Date General Journal Debit Credit
December 31, 2021
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