Question

On January 1, 2018, Carvel Corp. issued five-year bonds with a face value of $640,000 and a coupon interest rate of 6%, with interest payable semi-annually. Assume that the company has a December 31 year end and records adjusting entries annually. (a) Your answer is correct. Record the journal entries relating to the bonds on January 1, July 1, and December 31, assuming that when the bonds were sold, the market interest rate was 5%. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to decimal places, e.g. 5,275.) Date Account Titles and Explanation Debit Credit Z Jan. 1 Cash 668008 | Bonds Payable 668008 July 1 Interest Expense 16700 T Bonds Payable 2500 | TCash 19200 Dec 31 Interest Expense 16638 Bonds Payable 256211 Interest Payable T T 19200

Answer 1

Table values are based on:
Face Amount	$640,000
Interest Payment	$640,000*6%*6/12 =$19,200
Market Interest rate per period	3.50%
Cash Flow	Table Value(PV of 3.50% for 10 period)	Amount	Present Value
PV of Interest	8.31661	$19,200	$1,59,679
PV of Principal	0.70892	$6,40,000	$4,53,709
PV of Bonds Payable(Issue Price)			$6,13,388
Discount on issue of Bond =$640,000 - $613,388 =$26,112
Date	Accounts and explanation	Debit(in $)	Credit(in $)
Jan-01	Cash	$6,13,388
	Bonds Payable		$6,13,388
Jul-01	Interest expenses	$21,469
	Cash		$19,200
	Bonds Payable		$2,269
Dec-31	Interest expenses	$21,548
	Cash		$19,200
	Bonds Payable		$2,348