Question

Problem 10-8AB Effective Interest: Amortization of bond discount LO P1, P5 Legacy issues $630,000 of 9.0%, four-year bonds dated January 1, 2018, that pay interest semiannually on June 30 and December 31. They are issued at $571,310, and their market rate is 12% at the issue date. points Required: 1. Prepare the January 1, 2018, journal entry to record the bonds' issuance. 2. Complete the below table to calculate the total bond interest expense to be recognized over the bonds' life. 3. Prepare an effective interest amortization table for the bonds' first two years. Prepare the journal entries to record the first two interest payments. eBook Print Complete this question by entering your answers in the tabs below. References Required 1 Required 2 Required 3 Required 4 Prepare the January 1, 2018, journal entry to record the bonds' issuance. View transaction list Journal entry worksheet Record the issue of bonds with a par value of $630,000 cash on January 1, 2018 at an issue price of $571,310.

Answer 1

Solution 1:

Legacy
Journal Entries
Date	Particulars	Debit	Credit
01-Jan-18	Cash A/c Dr	$5,71,310
	Discount on Bond Payable	$58,690
	To bonds payable		$6,30,000
	(Being bond issued at Discount)

SOlution 2:

Total bond interest expense over the life of bond
Particulars	Amount
Amount Repaid:
8 payments of ($630,000*9%*6/12=) $28,350 each	$2,26,800
Par Value at Maturity	$6,30,000
Total Repaid	$8,56,800
Less: Amount borrowed	$5,71,310
Total bond interest expense	$2,85,490

Solution 3:

Bond Amortization Schedule
Date	Cash interest	Interest Expense	Discount amortization	Unamortized discount	Carrying value
01-Jan-18				$58,690.00	$5,71,310
30-Jun-18	$28,350	$34,279	$5,929	$52,761	$5,77,239
31-Dec-18	$28,350	$34,634	$6,284	$46,477	$5,83,523
30-Jun-19	$28,350	$35,011	$6,661	$39,816	$5,90,184
31-Dec-19	$28,350	$35,411	$7,061	$32,755	$5,97,245

Solution 4:

Journal Entries
Date	Particulars	Debit	Credit
30-Jun-18	Interest Expense Dr	$34,279
	To Discount on bond payable		$5,929
	To Cash		$28,350
31-Dec-18	Interest Expense Dr	$34,634
	To Discount on bond payable		$6,284
	To Cash		$28,350