P14-5 (L01,2) Comprehensive Bond Problem In each of the following independent cases the company closes its books on December 31. 1. Sandford Co. sells bonds on March 1, 2020. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2023. Pertinent information follows: $ Par value of the bonds Stated interest rate Bond yield rate 500,000 10% 12% Give the entries through December 31, 2021. 2. Titania Co. sells bonds on June 1, 2020. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2024. On October 1, 2021, Titania buys back a portion of the bonds. Additional information follows: $ Par value of the bonds issued Stated interest rate Bond yield rate Face amount of bonds bought back Amount paid to buy back bonds including interest 400,000 12% 10% 120,000 126,000 $ $ $ Give the entries through December 1, 2022. Note: Excel uses more decimal places than used in the solutions provided by the author. As such, the answers shown below will differ slightly from those in the solutions manual due to rounding and significant digits. Instructions: For the two cases prepare all of the relevant journal entries from the time of sale until the date indicated. Use the effective-interest method for discount and premium amortization (construct amortization tables where applicable). Amortize premium or discount on interest dates and at year-end. (Assume that no reversing entries were made.) Sanford Co. Calculation of issue price and discount using Excel's PV function: Issue value of bonds =-PV(6%,7,25000,500000) = 472088 = Schedule of Bond Discount Amortization Effective Interest Method 10% Bonds Sold to Yield 12% Bond Carrying Cash Interest Discount Value Date Paid Expense Amort. of Bonds $ 472,088 Mar 1, 20 $25,000 $28,325 Sep 1, 20 $25,000 $28,525 Mar 1, 21 $25,000 $28,736 Sep 1, 21 $25,000 28,960 Mar 1, 22 $25,000 29,198 Sep 1, 22 $25,000 29,450 Mar 1, 23 $25,000 29,717 Debit Credit 3/1/20 9/1/20 12/31/20 MIMI 3/1/21 9/1/21 12/31/21 Titania Co. Calculation of issue price and discount using Excel's PV function: Schedule of Bond Premium Amortization Effective Interest Method 12% Bonds Sold to Yield 10% Bond Carrying Cash Interest Premium Value Paid Expense Amort. of Bonds Date Debit Credit 6/1/20 12/1/20 12/31/20 6/1/21 10/1/21 Calculation of gain on redemption 10/1/21 12/1/21 12/31/21 6/1/22 12/1/22