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In your own words Discuss in detail why bonds may be sold ortraded at a discount or a premium. Also explain in your own wordswhat the amortization of a bond discount or a bond premium is andhow it works.

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Tod Thiel
Tod ThielLv2
28 Sep 2019

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Accounting for Bonds

For your main Discussion post, share your understanding of bonds as a form of financing a corporation. Discuss how the price of a bond is determined and provide an example of each of the following:

• A bond issued at a premium,

• A bond issued at par,

• A bond issued at a discount.

Additionally, provide the journal entry that would be made to record each of your bond examples as well as the first journal entry that would be made to amortize each of the bond’s premium and discount. What would be the Net Bond Value after the first amortization entry for each of your example bonds? In your main post, also comment on the circumstances upon which a bond may be callable and when a bond may be convertible.

On July 1, Hanover Company issued $2,000,000 of 10-year, 6%bonds at an effective interest rate of 5%. This netted the company$2,154,435. Interest on the bonds is payable annually on July 1.The president of Hanover has asked you to develop an amortizationschedule worksheet (file name AMORT) that will use the effectiveinterest method to calculate annual interest expense, premium (ordiscount) amortization, unamortized premium (or discount), and bondcarrying amount. Your worksheet should include a Data Section.

Check figure: Amortization of bond premium, tenth year,$19,048.

To test your model, calculate the annual interest expense,discount amortization, unamortized discount, and bond carryingamount of $700,000 of 10-year, 7.5% bonds at an effective interestrate of 8%. The issuance of these bonds netted the company$676,515. Interest on the bonds is payable annually. Print theworksheet when done. Check figure: Amortization of bond discount,tenth year, $3,241.

Please show all the formulas.

On July 1, 2010, Atwater Corporation issued $1,681,700 face value,9%, 10-year bonds at $1,920,720. This price resulted in aneffective-interest rate of 7% on the bonds. Atwater uses theeffective-interest method to amortize bond premium or discount. Thebonds pay semiannual interest July 1 and January 1.

Instructions
(Round all computations to 0 decimal places, e.g. 125. Use roundedamounts for future computations.)

Prepare an amortization table through December 31, 2011 (3 interestperiods) for this bond issue.

Semiannual Interest Periods/ Interest to Be Paid/ Interest Expense/Premium Amortization/ Unamortized Premium/ Bond CarryingValue

Issue Date
1
2
3

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