On January 1, 2018, Splash City issues $340,000 of 9% bonds, due in 20 years, with interest payable semiannually on June 30 and December 31 each year. Assuming the market interest rate on the issue date is 8%, the bonds will issue at $373,648. Required:
1. Complete the first three rows of an amortization table.
Date Cash Paid Interest Expense Decrease in Carrying Value Carrying Value
1/1/18
6/30/18
12/31/18
On January 1, 2018, Splash City issues $340,000 of 9% bonds, due in 20 years, with interest payable semiannually on June 30 and December 31 each year. Assuming the market interest rate on the issue date is 8%, the bonds will issue at $373,648.
2. Record the bond issue on January 1, 2018, and the first two semiannual interest payments on June 30, 2018, and December 31, 2018.

Splash City

1. 1. The first three rows of an amortization table.

Date           Cash Paid   Interest Expense    Decrease in     Carrying Value

                                                                    Carrying Value

1/1/18          $0                                                                              $373,648

6/30/18      $15,300            $14,946                 $354                   373,294

12/31/18      $15,300              14,932                   368                   372,926

2. Journal Entries:

January 1, 2018L:

Debit Cash $373,648

Credit 9% Bonds Payable $340,000

Credit Bonds Premium $33,648

To record the proceeds from the bond issue, including the premium.

June 30, 2018:

Debit Interest Expense $14,946

Debit Amortization of Bonds Premium $354

Credit Cash $15,300

To record the first semiannual interest payment.

December 31, 2018:

Debit Interest Expense $14,932

Debit Amortization of Bonds Premium $368

Credit Cash $15,300

To record the second semiannual interest payment.

Explanation:

a) Data and Calculations:

January 1, 2018:

Face value of 9% bonds issued = $340,000

Proceeds from issue of bonds =     373,648

Premium on issue of bonds =         $33,648

Coupon Interest rate = 9%

Payment = Semiannually on June 30 and December 31

Market interest rate = 8%

June 30:

Interest expense = $14,946 ($373,648 * 4%)

Cash payment =       15,300 ($340,000 * 4.5%)

Amortized premium   $354

Fair value of bonds = $373,294 ($373,648 - $354)

December 31:

Interest expense = $14,932 ($373,294 * 4%)

Cash payment =       15,300 ($340,000 * 4.5%)

Amortized premium   $368

Fair value of bonds = $372,926 ($373,294 - $368)

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