Question

Park Corporation is planning to issue bonds with a face value of $3,700,000 and a coupon rate of 7 percent. The bonds mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Park uses the effective-interest amortization method and also uses a premium account. Assume an annual market rate of interest of 6.0 percent.

Required:

1.&2. Prepare the journal entry to record the issuance of the bonds and the interest payment on June 30 of this year

3. How will Park present its bonds on its June 30 balance sheet?

Answer 1

Solution 1 and 2:

C D E F AR SK 6 Chart Values are based on: 7 n=(10 Years*2) 20 Half years i= (6%/2) 3% Semi annual 9 Cash Flow Table Value * Amount = Present Value 10 Par (Maturity) Value 0.55368 * $3,700,000/= $2,048,600 11 Interest (Annuity) [$3,700,000*7%*6/12] 14.87747 * $129,500= $1,926,633 12 Price of Bonds $3,975,233 13 26 27 32 33 34 35 36 41 42 et794 Sheet755 Sheet299 (5) Sheet202 (6) Sheet756 (2)

K Credit Debit $3,975,233 $275,233 $3,700,000 10 11 12 Park Corporation Journal Entries Date Particulars 01-Jan Cash A/c Dr To Premium on Bond payable To bonds payable |(Being bond issued at premium) Date Particulars 30-Jun Interest Expense Dr ($3975233*6%*6/12) Premium on bond Payable Dr To Cash ($3,700,000*7%*6/12) (To record first Interest Payment and Amortization of premium on issue) Credit 13 Debit $119,257 $10,243 $129,500 18 19 20 21 22 23 24 25 26 27 28 29 32 33 34 35 36 37 38 39 40 41 42 et794 Sheet755 Sheet299 (5) Sheet202 (6) Sheet756 (2)

Solution 3:

к Park Corporation Balance Sheet (Partial) At June 30 Long Term Liabilities: Bond Payable Add: Unamortized Discount ($275233-$10243) $3,700,000 $264,990 $3,964,990 26 27 32 35 36 37 38 41 42 et794 Sheet755 Sheet299 (5) Sheet202 (6) Sheet756 (2)