Question

on Jan 1, 2000, Ollie, CO. issues a series of bonds. The bonds pay no interest, but bondholders receive $200,000 at the end of each year for 5 years. The market rate at the time of issues is 6%.

a. record the issuance of bonds on January 1, 2000.

b. Create the interest amortization table related to this bond

c. record the December 31, 2000 Journal entry related to this bond

Answer 1

Requirement a:

Date	Account title and explanation	Debit	Credit
1/1/2000	Cash*	$149,452
	Discount on bonds payable	$50,548
	Bonds payable		$200,000
	[To record issuance of bonds]

*Cash received = Face value of the bonds x 0.74726 present value factor (6%, 5 years)

=$200,000 x 0.74726

=$149,452

Requirement b:

Interest amortization table
Year	Interest expense	Bond carrying value
0		$149,452
1	$8,967	$158,419
2	$9,505	$167,924
3	$10,075	$178,000
4	$10,680	$188,680
5	$11,321	$200,000

Interest expense = Preceding carrying value x 6%

Bond carrying value = Preceding carrying value + Interest expense

Requirement c:

Date	Account title and explanation	Debit	Credit
12/31/2020	Interest expense	$8,967
	Bonds payable		$8,967
	[To record interest expense]