Question

On January 1, 2019, Lagune & Sons issued 9% bonds dated January 1, 2019, with a face amount of $200,000. The bonds mature in 20 years. The effective interest rate for these bonds was 10%. Interest is paid semiannually on June 30 and December 31. Lagune’s fiscal year is the calendar year.

1. Calculate the issue price of the bond. Show the calculation.

2. Prepare an amortization schedule for the first year of the bond.

3. Prepare the necessary entries from the issuance of the bond on January 1 through December 31, 2019.

Answer 1

1	$182,841
	Present value of Bond Face Value		$28,410
	$200,000 x 0.14205 i.e. (PVF 40, 5%)
	Present value of Bond Interest		$154,431
	$9,000 x 17.15909 i.e. (PVFA 40, 5%)
			$182,841
2	Period	Cash Interest	Interest Expense	Discount Amortized	Carrying Value
	Jan 1, 2019				$182,841
	June 30, 2019	$9,000	$9,142	$142	$182,983
	Dec 31, 2019	$9,000	$9,149	$149	$183,132
3	Date	Accounts	Debit	Credit
	Jan 1	Cash	$182,841
		Discount on Bond Payable	$17,159		(Balance)
		Bond Payable		$200,000
	June 30	Interest Expense	9,142		(5% x $182,841)
		Discount on Bonds Payable		142
		Cash		9,000	(4.5% x $200,000)
	Dec 31	Interest Expense	9,149		(5% x [$182,841 + $142])
		Discount on Bonds Payable		149
		Cash		9,000	(4.5% x $200,000)