On January 1, Altman Company issued bonds that had a par value of $840,000 with a stated interest rate of 4% and a 5 year maturity date. The bonds pay interest semiannually on June 30 and December 31.
The bonds are issued at 98 1/4.
a) Prepare the journal entries Altman Company must record in its books at bond issuance, the first interest payment date, and at bond maturity. Altman Company uses the straight line method to amortize any discount or premium.
| Date | Description | Debit | Credit |
|---|---|---|---|
| 01/01 | |||
| 01/01 | |||
| 01/01 | |||
| 01/01 | to record the sale of bonds at a discount (98 1/4 of par value) | ||
| 06/30 | |||
| 06/30 | |||
| 06/30 | |||
| 06/30 | to record the semi-annual interest payment & amortization of discount on bonds | ||
| 01/01/yr 5 | |||
| 01/01/yr 5 | |||
| 01/01/yr 5 | to record the maturity of bonds | ||
b)Â Use the straight-line method to complete the amortization table below for the bond sold at 98 1/4 of par value.
| Semiannual Interest Period | Unamortized Discount | Carrying Value | |
|---|---|---|---|
| Year 1 | Issue date | ||
| 06/30 | |||
| 12/31 | |||
| Year 2 | 06/30 | ||
| 12/31 | |||
| Year 3 | 06/30 | ||
| 12/31 | |||
| Year 4 | 06/30 | ||
| 12/31 | |||
| Year 5 | 06/30 | ||
| 12/31 |