Question

On January 1, Soren Enterprises issued 15-year bonds with a face value of $200,000. The bonds carry a coupon rate of 8 percent, and interest is paid semi-annually. On the issue date, the annual market interest rate for bonds issued by companies with similar riskiness was 10 percent. The issuance price of the bonds was $169,255. Which ONE of the following would be included in the journal entry necessary on the books of the bond issuer to record the SECOND interest payment on December 31 of Year 1? Use effective-interest amortization of the bond discount. CREDIT to Interest Expense of $8,000 DEBIT to Discount on Bonds Payable of $463 CREDIT to Discount on Bonds Payable of $463 DEBIT to Discount on Bonds Payable of $486 DEBIT to Interest Expense of $8,000 CREDIT to Discount on Bonds Payable of $486

Answer 1

Answer:

A	B	C	D	E	F	G
DATE	INT PAYMENT(FACE VAL*4%)	INTEREST EXPENSE(PREVIOUS BOOK VAL IN G*5%)	AMORTISATION(C-B)	BALANCE IN DISCOUNT(PREV VALUE-D)	FACE VALUE	BOOK VALUE(PREV VALUE+D)
Coupon Payment				30745	200000	169255
1	8000	8463	463	30282	200000	169718
2	8000	8486	486	29796	200000	170204

In the books of M/s Soren Enterprises	Journal
Date	Particulars	Dr($)	Cr($)
31-Dec	Interest Expense	8,486
	To Discount on Bonds Payable		486
	To Interest on Bonds Payable		8,000
	(Being payment for 2nd interest amount and amortisation of premium)

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