Question

9 of 9 (9 complete) > HW Score: 98.02%, 53 91 of 55 Question Help 018 At December 31, 2020, Barry reported the bonds Barry's pays semiannual interest each June 30 and December 31. (Assume bonds payable are amortized using the straight line amortization method) Read the requirements Requirements - X 1. Answer the following questions about Barry's bonds payable: a. What is the maturity value of the bonds? b. What is the carrying amount of the bonds at December 31, 2020? c. What is the semiannual cash interest payment on the bonds? d. How much interest expense should the company record each year? 2. Record the June 30, 2020, semiannual interest payment and amortization of discount. Print Done Clear All Check Answer 3:05 PM

Answer 1

1d)

Par value of bonds = $700,000

Issue price = 90

Cash receipts from issue of bonds = 700,000 x 90%

= $630,000

Discount on bonds payable = Par value of bonds - Cash receipts from issue of bonds

= 700,000 - 630,000

= $70,000

Semi annual interest payment = Par value of bonds x Interest rate x 6/12

= 700,000 x 4% x 6/12

= $14,000

Semi annual amortization of bond discount = Discount on bonds payable/Semi annual interest payment periods

= 70,000/20

= $3,500

Annual interest expense = (Semi annual interest payment + Semi annual amortization of bond discount) x 2

= (14,000 + 3,500) x 2

= 17,500 x 2

= $35,000

2.

Journal

June 30, 2020	Interest expense	17,500
	Discount on bonds payable		3,500
	Cash		14,000