Question

Refer to the bond details in Problem 10-4A (attached photo).

Required:

1. Prepare the January 1 journal entry to record the bonds' issuance.

2. Determine the total bond interest expense to be recognized over the bonds life.

3. Prepare an effective interest amortization table like the one in Exhibit 10B.1 for the bonds' first two years.

4. Prepare journal entries to record the first two interest payments.

J UHUU UU ILIU te nisl two interest payments. Curryy vuIC PLODU Legacy issues $325,000 of 5%, four-year bonds dated January 1. 2019. that pay interest semiannually on June 30 and December 31. They are issued at $292,181 when the market rate is 8%. Problem 10-4A Straight-Line: Amortization of bond discount P2 Required 1. Prepare the January 1 journal entry to record the bonds' issuance. 2. Determine the total bond interest expense to be recognized over the bonds' life. 3. Prepare a straight-line amortization table like the one in Exhibit 10.7 for the bonds' first two years. 4. Prepare the journal entries to record the first two interest payments. Check (2) $97.819 (3) 12/31/2020 carrying value, $308,589 On November 1, 2019, Norwood borrows $200,000 cash from a bank by signing a five-year installment note bearing 8% interest. The note requires equal payments of $50,091 each year on October 31. Problem 10-5A Installment notes

Answer 1

1	Journal
	In the books of …..
S No	Particulars	Dr/Cr.	Dr ($)	Cr ($)
1-Jan	Bank A/c	Dr	325,000
	To Deferred Income A/c	Cr		11,262
	To 5%, 4 year Bonds A/c	Cr		313,738
	(Being bonds issued)

2 and 3
Calculation of amortised cost of Bond as per IFRS 32 - Yield at 6% (6% is assumed as Yield is not given in question)
Year	Cash Payment ($)	PV @ 6% ($)	Opening Balance	(A) Cash Interest Paid	(B) Bond Interest @ 6%	('C) Discount amortisation	(D) Unamortised Discount	('E) Carrying Value
1	16,250	15,330	313,738	16,250	18,824	2,574	8,687	316,313
2	16,250	14,462	316,313	16,250	18,979	2,729	5,959	319,041
3	16,250	13,644	319,041	16,250	19,142	2,892	3,066	321,934
4	16,250	12,872	321,934	16,250	19,316	3,066	-	325,000
4	325,000	257,430
	390,000	313,738		65,000	76,262	11,262
Total Bond Interest = $76,262

4
S No	Particulars	Dr/Cr.	Dr ($)	Cr ($)
Year 1 end	Finance Cost A/c	Dr	18,824
	To 5%, 4 year Bonds A/c	Cr		18,824
	(Being Interest accrued)
Year 1 end	Deferred Income A/c	Dr	2,574
	To Finance Cost A/c	Cr		2,574
	(Being deferred income adjusted against finance cost)
Year 1 end	5%, 4 year Bonds A/c	Dr	16,250
	To Bank A/c	Cr		16,250
	(Being interest paid)
Year 2 end	Finance Cost A/c	Dr	14,462
	To 5%, 4 year Bonds A/c	Cr		14,462
	(Being Interest accrued)
Year 2 end	Deferred Income A/c	Dr	2,729
	To Finance Cost A/c	Cr		2,729
	(Being deferred income adjusted against finance cost)
Year 2 end	5%, 4 year Bonds A/c	Dr	16,250
	To Bank A/c	Cr		16,250
	(Being interest paid)