Final answer:
An amortization table for the first two semiannual periods of Bryant Realty's 9.25% bond issued at a discount is prepared using the effective interest amortization method. The bond's carrying value is adjusted semiannually for the discount based on the market interest rate of 12%. Journal entries involve recording interest expense at the market rate, cash payments at the coupon rate, and amortization of the discount on bonds payable.
Step-by-step explanation:
Amortization Table for Bryant Realty Bonds Payable
Let's prepare an amortization table using the effective interest method for the first two semiannual interest periods. Since bonds with a coupon rate lower than the market rate are issued at a discount, they require adjustment over the life of the bond to bring the book value to par at maturity.
The bond's coupon rate is 9.25%, which means semiannual interest payments will be ($750,000 * 9.25% / 2) = $34,687.50.
For the first semiannual period, interest expense using the market rate of 12% annual (6% semiannual) on the carrying amount of $631,866 (the present value of the bonds) will be ($631,866 * 6%) = $37,912 (rounded).
The discount amortized is the difference between the interest expense and the interest payment: $37,912 - $34,687.50 = $3,224.50 (rounded to the nearest dollar). So, the new carrying amount of the bond after the first payment is $631,866 + $3,224.50 = $635,091.50.
Repeating this process for the second period using the new carrying amount yields a new interest expense and discount amortization figure which will slightly increase due to the slightly higher carrying amount.
Journal Entries for Bond Transactions
On issuance, the journal entry would credit bonds payable for the face value ($750,000) and debit cash for the price the bonds were issued at ($631,866) and debit discount on bonds payable for the difference ($118,134).
For interest payments, you will debit interest expense for the amount calculated ($37,912 for the first period), credit cash for the actual payment ($34,687.50), and credit discount on bonds payable for the difference ($3,224.50).
These entries recognize the interest expense at the market rate and amortize the discount on bonds payable over the life of the bonds. Performing these steps for the second period likewise, you'll have a similar journal entry with adjusted amounts based on the new carrying value.