On September 30, 2014, when the market interest rate is 6 percent, Yale Ltd. Issues $8,000,000 of 8-percent, 20-year bonds for $9,849,182. The bonds pay interest on March 31 and September 30. Yale Ltd. amortizes bond premium by the effective-interest method.

Required

1. Prepare an amortization table for the first four semiannual interest periods. Follow the format of Panel B in Exhibit 15-6 on page 934.

2. Record the issuance of the bonds on September 30, 2014, the accrual of interest at December 31, 2014, and the semiannual interest payment on March 31, 2015.

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EXHIBIT 15-6 Effective-Interest Method of Amortizing a Bond Premium Panel A: Bond Data Maturity value-$1,000,000 Stated (contract) interest rate 5% Interest paid-2.5% semiannually, $25,000 ($1,000,000 × 0.025) Market interest rate at time of issue 4% annually, 2% semiannually Issue price-$1,044,913 Panel B: Amortization Table A в Interest Unamortized Expense (2% of Preceding Maturity Bond Carrying Amortization Amount) Interest Premium Payment Semiannual (2.5% of Account Bond Premium Balance Carrying Interest (Preceding Amount D - Current C) (1,000,000 + D) (A – B) Period Value) Issue Date $44,913 $1,044,913 $20,898 $25,000 $4,102 40,811 36,627 32,360 1,040,811 4,184 25,000 20,816 1,036,627 25,000 3 20,733 4,267 1,032,360 1,028,007 4. 25,000 20,647 4,353 28,007 23,567 1,023,567 25,000 20,560 4,440 20,471 4,529 4,619 4,712 25,000 19,038 1,019,038 25,000 20,381 14,419 1,014,419 20,288 25,000 9,707 1,009,707 4,901 25,000 20,194 4,806 1,004,901 1,000,000 10 25,000 20,099 4,901 Notes: Column A The semiannual interest payments are a constant amount fixed by the stated interest rate and the bonds' maturity value. (Dark red line in Exhibit 15-7, Panel A) Column B The interest expense each period is computed by multiplying the preceding bond carrying amount by the effective-interest rate. The amount of interest decreases each period as the bond carrying amount decreases. (Blue line in Exhibit 15–7, Panel A) Column C The excess of each interest payment (A) over the period's interest expense (B) is the premium amortization for the period. (Shaded area in Exhibit 15-7, Panel A) Column D The premium balance decreases by the amount of amortization for the period (C) from $44,913 at issuance to zero at maturity. (Shaded area in Exhibit 15-7, Panel B) The bonds' carrying amount minus the premium balance equals the bonds' maturity value. The bonds' carrying value decreases from $1,044,913 at issuance to $1,000,000 at maturity. (Dark blue line in Exhibit 15-7, Panel B) Column E