Question

Bond sale.

Straight Line Amortization #2 Bonds Bonds issue 12/31/2xx1 $ 600,000 Face rate of Bond 6.00% Sold at Market rate of 8.00% Term in years 4 Interest paid annually at 12/31 Interest expense recorded quarterly A. Show computaions to get net proceeds from Bond sale B. Show JE to record sale @ 12/31/2xx1 C. Show 3 JE's to record interest expense for 3/31, 6/30,9/30 of 2xx2; was not paid D. knowing 3 quarters of expense had been recorded in C. above, show JE at 12/31/x2; payment to lender was made that day

Answer 1

a. Net proceeds = 560,254 (rounded off to the nearest whole number)

NPER	4
FV	600000
PMT	36000.0	[600,000*6%]
Rate	8.00%
PV	$560,254.478	[-pv(rate,nper,pmt,fv,0)

b.

Date	Account titles	Debit	Credit
12/31/2xx1	Cash	560254
	Discount on bonds payable	39746
	Bonds payable		600000

c and d. Assuming straight line method of discount amortization:

Date	Account titles	Debit	Credit
3/31/2xx2	Interest expense	11484
	Discount on bonds payable [39746/4 * 1/4]		2484
	Interest payable [600,000*6%*1/4]		9000
06/30/2xx2	Interest expense	11484
	Discount on bonds payable		2484
	Interest payable		9000
09/30/2xx2	Interest expense	11484
	Discount on bonds payable		2484
	Interest payable		9000
12/31/2xx2	Interest payable	27000
	Interest expense	11484
	Discount on bonds payable		2484
	Cash		36000