Question

Boardwalk Corporation is planning to issue bonds with a face value of $510,000 and a coupon rate of 7.5 percent. The bonds mature in four years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Boardwalk uses the effective-interest amortization method and does not use a discount account. Assume an annual market rate of interest of 8.5 percent. Required: 1. Provide the journal entry to record the issuance of the bonds. 2. Provide the journal entry to record the interest payment on June 30 of this year 3. What bond payable amount will Boardwalk Corporation report on its June 30 balance sheet?

Answer 1

1.

Year	Particulars	L.F	Debit ($)	Credit ($)
Jan-01	Cash		493,007
	Discount on Bonds Payable		16,993
	Bonds Payable			510,000
	(For bonds issued at discount)

Working:

Table values are based on:
n = 8
i = 4.25%
Cash Flow	Table Value	Amount	Present Value
Interest	6.664	19,125	127,445
Principal	0.717	510,000	365,563
Price of bonds			493,007

2.

Year	Particulars	L.F	Debit ($)	Credit ($)
Jun-30	Interest Expense (493,007*8.5%*6/12)		20,953
	Discount on Bonds Payable			1,828
	Cash (510,000*7.5%*6/12)			19,125
	(For bonds issued at discount)

3.

Boardwalk Corporation
Balance Sheet (Partial)
Jun-30
Long-term liabilities
Bonds payable	510,000
Less: Discount on on Bonds payable	-15,165	494,835
Total liabilities		494,835