Question

Question 2 Grouper Limited issued $393,000 of 8% bonds on January 1, 2020. The bonds are due on January 1, 2025, with interest payable each July 1 and January 1. The bonds are issued at 98. Grouper Limited follows ASPE and records the amortization using the straight-line method. v (a) V Your answer is correct. Prepare the journal entry related to the bonds for January 1. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Account Titles and Explanation Debit Credit Date Jan. 1, 2020 TCash 385140 Bonds Payable 385140 SHOW LIST OF ACCOUNTS SHOW SOLUTION SHOW ANSWWER

Answer 1

Bond is a fixed income security in which issuer promises pay a series of interest payment and repay the principle on maturity to the investor. In straight line amortization, the premium received or discount given on issue of bond is amortized over the bond period maturity on straight line basis. Formula is (Discount / Premium Amount) divided by bond period. Face Value $3,93,000 Coupon rate 8% bond period (5x2] 10 Interest payment is semiannually Interest payment per period $15,720 [$393000 x 8%/2] Issue proceeds $3,85,140 [$393000/100*98] Discount $7,860 ($393000-$385140] Straight line amortisation $786 [$7860/10] Ans 2a Date Account title and Explanation Debit Credit Jan 1, 2020 Cash $3,85,140 Bond Payable $3,85,140 (To record issue of bond) July 1, 2020 Interest Expense $16,506 Cash $15,720 Bond Payable $786 (To record interest payment and discount amortisation Ans 2b