Renton Effective Am21
Renton Effective Am21
On January 1, 2021, Dumaguete Company issued bonds payable with face amount of P6,000,000 with an
8% effective yield.
The bonds mature on every December 31 each year at the rate P2,000,000 for three years.
Present value of 1 at 8%
One period 0.93
Two periods 0.86
Three periods 0.79
Required:
1. Determine the market price or issue price of the bonds payable.
Present value
December 31, 2021 (2,360,000 x .9259) 2,185,124
December 31, 2022 (2,240,000 x .8573) 1,920,352
December 31, 2023 (2,120,000 x .7938) 1,682,856
Total present value 5,788,332
2. Prepare journal entries for 2021. The effective interest method of amortization is used.
Cash 5,788,332
Discount on bonds payable 211,668
Bonds payable 6,000,000
3. Determine the carrying amount of the bonds payable on December 31, 2021.
Interest is payable annually on June 1 of each year. The bonds mature in 5 years. The entity follows
calendar year.
Required:
1. Determine the market price of the bonds payable.
2. Prepare an effective interest amortization table for the first two interest periods.
Interest Premium Carrying
Date Interest paid expense amortization amount
1/6/2021 5,580,000
1/6/2022 600,000 669,600 69,600 5,649,600
1/6/2023 600,000 667,952 77,952 5,727,552