Question

On January 2, 2014, Adams Corporation, a calendar year-end company, issues $200,000 in Bonds, stated rate is 6%, market rate is 4%; interest is paid semi-annual on January 1 and July 1; the bonds mature in 5 years.

1. Calculate the issue price.

2. Prepare all journal entries made by Adams during 2014 relating to these bonds.

3. Show the balance sheet presentation of bonds payable at 12/31/14. Use good form and include the correct balance sheet classification as a heading.

4. Show the journal entry that Adams makes on January 2, 2019 (the maturity date)

Answer 1

1. Calculate the issue price.
Present value of Interest =			6000 x 8.982585*		=	$    53,895.51
Present value of principal =			200000 x 0.820348**		=	$ 164,069.60
						$        217,965	Issue Price
* present value of annuity n = 10, I = 2%
** Present value of $1 for n = 10, I = 2%
Interest amount = 200000 x 6% x 1/2
2. Prepare all journal entries made by Adams during 2014 relating to these bonds.
Date	Account titles and explanation				Debit	Credit
Jan 2, 2014	Cash				$        217,965
	Premium on bonds payable					$          17,965
	Bonds payable					$        200,000
Jul 1, 2014	Interest Expense (217965 x 2%)				$            4,359
	Premium on bonds payable				$            1,641
	Cash					$             6,000
Dec 31, 2014	Interest Expense (217965-1641) x 2%				$            4,326
	Premium on bonds payable				$            1,674
	Interest Payable					$             6,000
3. Show the balance sheet presentation of bonds payable at 12/31/14
	Balance sheet (partial)
	As at Dec 31, 2014
	Current Liabilities:
	Interest Payable				$            6,000
	Long term liabilities:
	Bonds payable				200000
	Add: Premium on bonds payable				14651
					214651
4. Show the journal entry that Adams makes on January 2, 2019 (the maturity date)
Date	Account titles and explanation				Debit	Credit
Jan 2, 2014	Bonds Payable				$        200,000
	Cash					$        200,000