Chapter 10 Question 4:

Ellis issues 9.0%, five-year bonds dated January 1, 2017, with a $550,000 par value. The bonds pay interest on June 30 and December 31 and are issued at a price of $572,325. The annual market rate is 8% on the issue date. (Table B.1, Table B.2, Table B.3, and Table B.4) (Use appropriate factor(s) from the tables provided.) Chapter 10 Question 4:

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. 4. Use the market rate at issuance to compute the present value of the remaining cash flows for these bonds as of December 31, 2019.

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

Prepare an effective interest amortization table for the bonds life.

Semiannual Period-End	Cash Interest Paid	Bond Interest Expense	Premium Amortization	Unamortized Premium	Carrying Value
01/01/2017
06/30/2017
12/31/2017
06/30/2018
12/31/2018
06/30/2019
12/31/2019
06/30/2020
12/31/2020
06/30/2021
12/31/2021
Total

Prepare the journal entries to record the first two interest payments.

Journal entry worksheet

Record the first interest payment on June 30, 2017.

Note: Enter debits before credits.

Date	General Journal	Debit	Credit
Jun 30, 2017

Record the second interest payment on December 31, 2017.

Note: Enter debits before credits.

Date	General Journal	Debit	Credit
Dec 31, 2017

Use the market rate at issuance to compute the present value of the remaining cash flows for these bonds as of December 31, 2019. (Round table values to 4 decimal places, and use rounded values in all calculations.)

Table values are based on:
n =
i =
Cash Flow	Table Value	Amount	Present Value
Par (maturity) value
Interest (annuity)
Price of bonds