Question

ABC company issues the following bonds: Issue date – January 1, 2020 Maturity date – January 1, 2024 Par value -- $50,000 Market interest rate at time of issue – 10% annually Stated interest rate – 12% annually Interest paid -6% semiannually Please calculate the selling price of the bonds, and make the necessary journal entry for July 1, 2020.

Company A issues a four-year, $10,000, zero-interest-bearing note to Company B. The implicit rate that equated the total cash to be paid ($10,000 at maturity) to the present value of the future cash flows ($7,350.30 cash proceeds at date of issuance) is 8%. Please fill in all the required blanks in the following table. (Round numbers to 2 decimal places, e.g. $588.02.)

Answer 1

	Face Value	$30,695.50
	$50,000 x PV of $1 5%, 10
	$50,000 x 0.61391
	Interest	$11,582.60
	$1,500 x PVA of $1 5%, 10
	$1,500 x 7.72173
	Selling Price of the Bonds	$42,278.10
Date	General Journal	Debit	Credit
Jan 1, 2020	Cash	$42,278.10
	Discount on Bonds Payable	$7,721.90
	Bonds Payable		$50,000.00
July 1, 2020	Interest Expense	$2,113.90
	Discount on Bonds Payable		$613.90
	Cash		$1,500.00
2
		Cash Paid	Interest Exp.	Discount Amortization	Carrying Value
	Date of Issue				$7,350.30
	End of Year 1	$0.00	$588.02	$588.02	$7,938.32
	End of Year 2	$0.00	$635.07	$635.07	$8,573.39
	End of Year 3	$0.00	$685.87	$685.87	$9,259.26
	End of Year 4	$0.00	$740.74	$740.74	$10,000.00