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Trilex Corporation is looking to finance an overseas expansion project. To do this, the board of directors has approved a multi-million dollar bond issuance. The details of the bond issuance are included below Face amount: $30 million Bond date: April 1, 2015 Maturity date: March 31, 2024 State interest: 890 Market interest: 10% Interest payments: Sep 30 and Mar 31 Issuance costs: $120,000
3. Assuming an April 1 issuance and assuming financial statements were prepared at 8/31/2015, prepare the appropriate journal entry to account for the first interest payment on September 30, 2015. 4. Prepare the appropriate journal entry to account for the interest payment on March 31, 2017. 5. Suppose the bonds were issued on August 1, 2015 instead. Prepare the journal entry at that date to reflect the bond issuance. 6. Assuming an August 1, 2015 issuance, prepare the appropriate journal entry to account for the first interest payment on September 30, 2015.
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Answer #1

Answer:

Bond Issuance costs are capitalized and expensed off over the life of the bond.

Trilex Corp Schedule of Bond Discount Amortization Calculation Date Interest Payment Interest expense Discount amortization Unamortized Discount Bond Carrying Amount Interest PaymentInterest expense 8% 10% 1-Apr-15 30-Sep-15 31-Mar-15 30-Sep-16 31-Mar-16 120,000.00 120,000.00 120,000.00 120,000.00 132,465.62 133,088.90 133,743.35 134,430.51 12,465.62 13,088.90 13,743.35 14,430.51 350,687.61 338,221.99 325,133.09 311,389.74 296,959.23 2,649,312.39 2,661,778.01-3,000,000.8%6/12 2,649,312.39*1096*6/12 2,674,866.91-3,000,000*896*6/12-2,661,778.01*10%*6/12 2,688,610.26 2,703,040.77 30,00,000 * 896 * 6/12 carrying amt 10%*6/12 Interest payment less interest expense Bond carrying amount plus Discount amortization Present Value PV of Interest Amoun Calculation PV of Maturity amount Total PV Future Value Bond Discount 1,402,750.43-120000*(1-(1/(1+5%)^18))/5% 1,246,561.96 :3,000,000/(1+5%)^18 2,649,312.39 Carrying Amount of bonds on 1st Apr 2015 (3,000,000.00) Amount to be received at maturity of bond $ (350,687.61) Interest rate annual Interest rate semi annual 10% 5% Number of years Number of periods 9 18

Date Account Titles and Explanation Debit Credit Calculation 1-Apr-15 Cash 2,649,312.39 350,687.61 Discount on Bonds Payable Bonds Payable 3,000,000.00 1-Apr-15 Bond Issuance Costs 120,000.00 Cash 120,000.00 31-Aug-15 Interest expense 110,388.02 -132465.62/6*5 Discount on Bonds Payable Interest Payable 10,388.0212465.62/6*5 100,000.00120000/65 Accrued for 5 months from 1st Apr to 31st Aug -120000/9*5/12 Amortised over life of bond 9 years 31-Aug-15 Bond Issuance Expense 5,555.56 Bond Issuance Costs 5,555.56

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