1.
Prepare amortization schedule of WW.
1.

Explanation of Solution
Amortization Schedule:
A schedule that gives the detail about each loan payment and shows the allocation of principal and interest over the life of the note, or bond is called amortization schedule.
Prepare amortization schedule.
Amortization schedule | ||||
Date | Cash Paid | Interest expense | Decreasing in Carrying Value | Carrying Value |
(A = $600,000 × 3.5%) | (B = D × 3%) | ( C = A– B) | ( D = D – C) | |
1//1/2021 | $644,632 | |||
6/30/2021 | $21,000 | $19,339 | $1,661 | $642,971 |
12/31/2021 | $21,000 | $19,289 | $1,711 | $641,260 |
6/30/2022 | $21,000 | $19,238 | $1,762 | $639,498 |
12/31/2022 | $21,000 | $19,185 | $1,815 | $637,683 |
6/30/2023 | $21,000 | $19,130 | $1,870 | $635,813 |
12/31/2023 | $21,000 | $19,074 | $1,926 | $633,887 |
Table (1)
Working note:
Calculate semiannual stated interest rate.
Calculate semiannual market interest rate.
2.
Prepare
2.

Explanation of Solution
Prepare journal entry to record retirement of bonds as on 31st December 2026.
Date | Account titles and Explanation | Debit | Credit |
January 31, 2026 | Bonds payable | $600,000 | |
Premium on bonds payable (1) | $33,887 | ||
Gain on retirement on bonds (2) | $65,576 | ||
Cash (3) | $568,311 | ||
(To record retirement of bonds before the maturity period) |
Table (2)
Working notes:
Calculate Premium on bonds payable.
Calculate gain on retirement of bonds.
Calculate the issue price of the bonds.
Calculate the present value of face value of principal
Particulars | Amount ($) |
Face value of bonds (a) | $600,000 |
PV factor at an annual market rate of 3.5% for 36 periods (b) | |
Present value of face value of principal | $346.485 |
Note: The present value of $1 for 14 periods at 4% is 0.57748 (refer Table 2 in Appendix). (4)
Calculate present value of interest payments.
Particulars | Amount ($) |
Interest payments amount (a) (6) | $21,000 |
PV factor at an annual market rate of 3% for 40 periods (b) | |
Present value of interest payments | $221,826 |
Note: The Present value of an ordinary annuity of $1 for 14 periods at 4% is 10.56312 (refer Table 4 in Appendix). (5)
Calculate the amount of interest payment.
- Bonds payable is a long term liabilities, and it is decreased. Therefore, debit bonds payable account for $600,000.
- Premium on bonds payable is an adjunct liability, and it is decreased. Therefore, debit premium on bonds payable account for $33,887.
- Gain on retirement of bonds is a component of stockholders’ equity, and it is increased. Therefore, credit gain on retirement of bonds account for $65,576.
- Cash is a current asset, and it is decreased. Therefore, credit cash account for $568,311.
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Chapter 9 Solutions
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