Question

Please find all the information below. Only need to answer part (d).

Sawada Insurance Ltd. issues bonds with a face value of $100 million that mature in 12 years. The bonds carry a 7.4% interest rate and are sold at 116.53 to yield 5.5%. They pay interest semi-annually. (a) Your answer is correct. Calculate the proceeds on issuance of the bonds, and show the journal entry to record the issuance. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.) Proceeds on Issuance of the Bonds 116530000 Account Titles and Explanation Debit Credit Cash 116530000 Notes Payable 116530000 SHOW LIST OF ACCOUNTS LINK TO TEXT Attempts: 1 of 2 used (c) Your answer is correct. Will the carrying value of the liability for these bonds increase over time, or decrease? The carrying value of the liability for these bonds will Lecrease over time.

Answer 1

d) Journal Entries:

Account Titles and Explanation	Debit	Credit
Interest Expense ($100,000,000*116.53/100 = $116,530,000*5.5/100*6/12 months)	$3,204,575
Premium on Bonds Payable ($3,700,000 - $3,204,575)	$495,425
Cash ($100,000,000*7.4/100*6/12 months)		$3,700,000
(To record the first interest payment)
Account Titles and Explanation	Debit	Credit
Interest Expense ($100,000,000*116.53/100 = $116,530,000 - $495,425*5.5/100*6/12 months)	$3,190,951
Premium on Bonds Payable ($3,700,000 - $3,190,951)	$509,049
Cash ($100,000,000*7.4/100*6/12 months)		$3,700,000
(To record the second interest payment)