Question

Alpine Cupcakes completed a $1 million 5-year debt issuance with monthly repayments of principal and interest. Bond was listed 2/28/20 at a 5% stated rate relative to the 6% market rate and Alpine Cupcakes able to sell the bonds at a price of 98% of the face value. 19
Please show necessary journal entry for initial bond issue and the monthly adjustment

Answer 1

Date	Account title	Debit	credit
2/28/20	cash	980000
	Discount on Bond payable	20000
	Bond payable		1000000
3/31/20	Interest expense	4900
	Discount on Bond payable		733.33
	cash		4166.67

#

2/28/2020 :Issue price = Face value *% of face value

                              = 1,000,000 * 98%

                               = 980000

#

Monthly interest to be paid in cash =Face value *coupon rate *n/12

                      = 1000000*.05 *1/12

                      = 4166.67

Monthly interest expense =Bond carrying value *Market rate* n/12

                            = 980000 * .06 *1/12

                           = 4900