Question

.1. Ten-year bonds payable with face value of $87,000 and stated interest rate of 12%, paid semiannually. The market rate of interest is 12% at issuance. The present value of the bonds at issuance is $87,000 

2. Same bonds payable as in assumption 1, but the market interest rate is 16%. The present value of the bonds at issuance is $69,955. 

3. Same bonds payable as in assumption 1, but the market interest rate is 10%. The present value of the bonds at issuance is $97,851.

Journalize issuance of the bond and the first semiannual interest payment under each of the three assumptions. The company amortizes bond premium and discount by the effective-interest amortization method. Explanations are not required. 

(Record debits first, then credits. Exclude explanations from any journal entries. Round your final answers to the nearest whole dollar.)

 Assumption 1. Ten-year bonds payable with face value of $87,000 and stated interest rate of 12%, paid semiannually. The market rate of interest is 12% at issuance. The present value of the bonds at issuance is $87,000 Journalize the issuance of the bonds when the market interest rate is 12%

Answer 1

JOURNAL ENTRIES

Sr No	Particulars	Dr Amount	Cr Amount
	Assumption 1
1	Issuance of Bond
	Cash/Bank A/c Dr	87,000
	To 12% Bonds		87,000
2	Semi Annual Interest Payment
	Interest Expense A/c Dr	5,220
	To Cash/Bank A/c		5,220

Sr No	Particulars	Dr Amount	Cr Amount
	Assumption 2
1	Issuance of Bond
	Cash/Bank A/c Dr	69,955
	Discount on 12% Bonds Payable	17,045
	To 12% Bonds		87,000
2	Semi Annual Interest Payment
	Interest Expense A/c Dr	5,596.4
	To Discount on 12% Bonds Payable		376.4
	To Cash/Bank A/c		5,220

Sr No	Particulars	Dr Amount	Cr Amount
	Assumption 3
1	Issuance of Bond
	Cash/Bank A/c Dr	97,851
	To 12% Bonds		87,000
	To Premium on 12% Bonds Payable		10,851
2	Semi Annual Interest Payment
	Interest Expense A/c Dr	4,892.55
	Premium on 12% Bonds Payable	327.45
	To Cash/Bank A/c		5,220