Question

Lee's Hamburgers issued 6%, 10-year bonds payable at 75 on December 31, 2018. At December 31, 2020, Lee reported the bonds payable as follows: BE: (Click the icon to view the bonds payable.) Lee's pays semiannual interest each June 30 and December 31. (Assume bonds payable are amortized using the straight-line amortization method.) Read the requirements. Requirement 1. Answer the following questions about Lee's bonds payable: a. What is the maturity value of the bonds? $

Answer 1

Answer with working is given below

Discount of $40,000 is unamortised for 8 years So for 10 years unamortized discount will $50,000 ($40,000/8*10 years) Alternatively Bond face value Less: Bond issue value Discount on issue of bonds $200,000 $150,000 75% $50,000 Semi annual discount to be charged to interest expense = $2,500 ($50,000/20) Since interest payment is half yearly for 10 years discount is amortized over 20 tenure (10 X 2) 1 a) Maturity value of bonds $200,000 1 b) Carrying amount of bonds at December 31st, 2020 $160,000 Semi-annual interest payment on bond $6,000 ($200,000*6%*6/12) Interest expense to be recorded each year $17,000 $12,000 Annual Cash Interest Annual discount amortization Annual Interest expense $5,000 ($2,500+$2,500) $17,000 Credit Date June 30, 2020 Debit $8,500 General Journal Interest Expense To Discount on issue on bonds To Cash ( Being interest expense on bond) $2,500 $6,000 Amortisation schedule- Straight line method Date Cash Interest Interest Expense at 12% Discount Unamortized Amortization Discount Carrying Value 31/12/2018 June 30,2019 December 31, 2019 June 30,2020 December 31, 2020 June 30,2021 December 31, 2021 June 30,2022 December 31, 2022 June 30,2023 December 31, 2023 June 30,2024 December 31, 2024 June 30,2025 December 31, 2025 June 30,2026 December 31, 2026 June 30,2027 December 31, 2027 June 30,2028 December 31, 2028 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $8,500 $8,500 $8,500 $8,500 $8,500 $8,500 $8,500 $8,500 $8,500 $8,500 $8,500 $8,500 $8,500 $8,500 $8,500 $8,500 $8,500 $8,500 $8,500 $8,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $50,000 $47,500 $45,000 $42,500 $40,000 $37,500 $35,000 $32,500 $30,000 $27,500 $25,000 $22,500 $20,000 $17,500 $15,000 $12,500 $10,000 $7,500 $5,000 $2,500 $0 $150,000 $152,500 $155,000 $157,500 $160,000 $162,500 $165,000 $167,500 $170,000 $172,500 $175,000 $177,500 $180,000 $182,500 $185,000 $187,500 $190,000 $192,500 $195,000 $197,500 $200,000