Question

Banjo Education Corp. issued a 4% $100.000 bond that pays interest semiannually each June 30 and December 31 The date of issuance was January 1, 2017 The bonds mature after four years. The market interest rate was 6% Banjo Education Corp's year-end is December 31. (Use TABLE 14A1 and TABLE 14A2) Required: Preparation Component: 1. Calculate the issue price of the bond. (Use appropriate factor(s) from the tables provided. Round the final answer to the nearest whole dollar.) Issue price of the bond 2. Prepare a general journal entry to record the issuance of the bonds (Do not round intermediate calculations. Round the final answers to the nearest whole dollar.) View transaction list Journal entry worksheet Record the sold bonds on original issue date. Note: Enter debits before credits Date General Journal Debit Credit January 01, 2017

Answer 1

Solution 1:

Computation of bond price
Table values are based on:
n=	8
i=	3.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.78941	$100,000.00	$78,941
Interest (Annuity)	7.01969	$2,000.00	$14,039
Price of bonds			$92,980

Solution 2:

Journal Entries - Banjo Education Corp.
Date	Particulars	Debit	Credit
1-Jan-17	Cash Dr	$92,980.00
	Discount on issue of bond Dr	$7,020.00
	To Bond Payable		$100,000.00
	(To record issue of bond at discount)

solution 3:

Total interest expense over life of bond = Cash interest paid + discount amortized

= ($2,000*8) + $7,020 = $23,020

Solution 4:

Bond Amortization Schedule
Period	Cash Paid	Interest Expense	Discount Amortized	Unamortized Discount	Carrying Value
1-Jan-17				$7,020	$92,980
30-Jun-17	$2,000	$2,789	$789	$6,231	$93,769
31-Dec-17	$2,000	$2,813	$813	$5,418	$94,582
30-Jun-18	$2,000	$2,837	$837	$4,580	$95,420
31-Dec-18	$2,000	$2,863	$863	$3,717	$96,283

Solution 5:

Journal Entries - Banjo Education Corp.
Date	Particulars	Debit	Credit
30-Jun-17	Interest expense Dr	$2,789.00
	To Discount on issue of bond		$789.00
	To Cash		$2,000.00
	(To record interest expense and discount amortization)
31-Dec-17	Interest expense Dr	$2,813.00
	To Discount on issue of bond		$813.00
	To Cash		$2,000.00
	(To record interest expense and discount amortization)