Winsome Company issued 7%, five-year bonds dated December 31, 2020. The bonds have a face value of $1,500,000 and pay interest each June 30 and December 31. The bonds were sold for $1,531,583.98, to provide the investors a 6.5% annual yield (Market Rate). Use the Excel template to prepare an amortization schedule to compute interest expense and amortization of the discount using the effective interest method and then again using the straight-line method. Print your schedules and use them to answer the following questions.

1. Prepare the journal entry to record the issuance of the bonds.

2. Prepare journal entries for the first two interest payments assuming the effective interest method of amortization is being used. (This requires two separate journal entries)

3. Prepare journal entries for the first two interest payments assuming the straight-line method of amortization is being used. (This requires two separate journal entries)

4. Assuming the straight-line method is being used what is the amount of interest expense that would be recorded for 2022? SHOW YOUR WORK.

5. What is the amount of interest expense for 2022 if the effective interest method is used? SHOW YOUR WORK.

6. Assume the bonds are retired on June 30, 2023 at 101.1. Compute the gain or loss resulting from the retirement of the bonds assuming the effective interest method is being used. SHOW YOUR WORK.

7. Prepare the journal entry that would be made to record the retirement of the debt assuming the effective interest method of amortization was being used.

8. What is the total amount of interest expense over the life of the bonds if the effective interest method of amortization is being used and the bonds are not paid off early? What is the total amount of interest expense over the life of the bonds if the straight line method were used? Effective Interest ____ Straight Line ___

Answer rating: 100% (QA)

WN 1 Calculation of semiannual interest Payment Face Value of 10 Bond 5 Years 150000000 Coupon Rate ... View the full answer