Question

Bond Problems 1. Consider a bond issue as follows: Face $100,000 Stated rate of interest 14% Market rate of interest 20% Maturity in five years Semi-annual interest payments on June 30 and December 31 Date of issue on January 1, 2019 Bond selling price: $81,566 1. Prepare the journal entry for the issuance. 2. Prepare the journal entry for the first interest payment. 3. Prepare the journal entry for the second interest payment. 5. Prepare the Balance Sheet presentation at December 31, 2019.

Answer 1

Answer

• All journal entries asked

Date	Accounts title	Debit	Credit
01-Jan-19	Cash	$81,566
	Discount on Bonds Payable	$18,434
	Bonds Payable		$100,000
	(to record issuance)
30-Jun-19	Interest Expense ($81566 x 20% x 6/12)	$8,157
	Discount on Bonds Payable		$1,157
	Cash ($100000 x 14% x 6/12)		$7,000
	(to record #1 interest payment)
31-Dec-19	Interest Expense (($81566 + 1157) x 20% x 6/12)	$8,272
	Discount on Bonds Payable		$1,272
	Cash ($100000 x 14% x 6/12)		$7,000
	(to record #2 interest payment)

• Balance Sheet preparation

Balance Sheet - Partial
as at 31 Dec 2019
Long Term Liabilities:
Bonds Payable	$100,000
Less: Discount on Bonds Payable [$18434 - 1157 - 1272]	$16,005	$83,995