Answer:
Answer is explained in the explanation section below.
Explanation:
Part 1:
Effective Interest Method:
Payment Cash Payment Effective Interest Increase Balance Carrying Value
$112,244
1. $4,800 $5,612 $812 $113,056
2. $4,800 $5,653 $853 $113,909
3. $4,800 $5,695 $895 $114,804
4. $4,800 $5,740 $940 $115,745
5. $4,800 $5,787 $987 $116,732
6. $4,800 $5,837 $1,037 $117,769
7. $4,800 $5,888 $1,088 $118,857
8. $4,800 $5,943 $1,143 $120,000
Totals $38,400 $46,156 $7,756
Calculations:
Cash payment = $120,000 x 4% = $4,800
Effective interest = Preceding carrying value x 5%
Increase in balance = Effective interest - Cash payment
Carrying value = Preceding carrying value + Increase in balance
Solution to part 2:
Similarly, we will be doing the part 2. Since, it is difficult to put here all the entries of the table. So, I have attached the tabulated part of the solution of part 2 in the attachment. Please refer to it.
Straight Line Method: Please refer to the attachment named Straight Line
Calculations used in the solution of part 2 are:
Cash payment = $120,000 x 4% = $5,600
Increase in balance = [$120,000-$112,244] ÷ 8 payments = $969.50
Effective interest = Cash payment + Increase in balance
Carrying value = Preceding carrying value + Increase in balance
Solution to Part 3:
In this we have to prepare the journal entries by each of the two approaches done above. So, for your ease, I have tabulated it and attached in the attachment below. Please refer to attachment named as Effective Interest Method Solution to part 3 and Straight Line method Solution to part 3:
Solution to part 5:
As, Carrying value of $12000 on June 30,2020 is $116,732
Thus, price of the bonds of $12,000 on June 30,2020 is $11,673
