Please complete the following exercises/examples.

Exercise 6: Complete the following example for a bond issued at a price of 106. T-accts below. The same bond from Exercise 4 is issued at a price of 106. This price indicates that the Effective rate of interest is less than the Stated rate of interest. As a result, the bond issues at a Premium. 1. Entry required upon issuance of the bond. Cash proceeds: $_ = $ Note: Even though a Premium is recorded, the company must still repay just $50,000 at the end of the bond term. 2. Entry on first interest payment date: a. Actual Interest payment b. Amortization of the Premium X / % X 6/12 = $ Interest periods = $ $ NOTE: Much like amortizing a discount, use the total number of interest periods to amortize the premium using the straight-line method. In this case the premium amortization effectively decreases Interest Expense. Why? Once again, since the bond was issued at a premium the company received cash proceeds greater than the principal amount ($50,000). However, the company only has to pay back the principal at the end of the bond term. So, the premium received up front effectively reduces the overall interest expense to the company over the life of the bond. Another way to think about it is that the interest paid combined with the premium amortization lowers the Interest Expense recognized to the full Effective rate of interest (remember in this case the Effective rate was less than the Stated rate). In the end, the company will really pay the Effective (market) rate of interest over the life of the bond. Premium on Bonds Payable Cash Bonds Payable Interest Expense TTT Exercise 8: Complete the following problem. A $20,000, 2 year, 10% (Stated rate) bond is sold when the Effective (Market) rate is 8%. The bond pays interest semi-annually. Assuming a price of 104 at issuance record the following. 1. Entry required upon issuance of the bond. Cash proceeds: $ X $ 2. Entry on the first interest payment date. Use STRAIGHT-LINE method for amortization. a. Actual Interest payment $ % x 6/12 = $ b. Amortization of the Premium using the STRAIGHT-LINE method. $ / periods= $ 3. Entry on the second interest payment date. Use STRAIGHT-LINE method for amortization. a. Actual Interest payment b. Amortization of the Premium using the STRAIGHT-LINE method. Premium on Bonds Payable Cash Bonds Payable Interest Expense TTTT Next, use the t-accounts below the table to repeat the same three steps (from above) but this time use the EFFECTIVE INTEREST RATE METHOD. Round any calculations to the nearest dollar. C D E 10% x $20K 12 Interest Paid (D-C) Interest Pymt 8% x Col.E I 2 Interest Expense (B - A) Premium Amortization Premium Balance 800 ($20K + D) Carrying Amount 20,800 1 2 Premium on Bonds Payable Cash Bonds Payable Interest Expense T Example 10: Use the t-accounts below to record the following bond retirement. A $200,000 callable bond with a $5,000 discount is called at a price of 104. Discount on Bonds Payable Loss on Retirement of Bonds Cash Bonds Payable 200,000 bal. 5,000 bal