Question

On January 1, 2019, Company C. issued five-year bonds with a face value of $500,000 and a coupon interest rate of 6%, with interest payable semi-annually. 1. Prepare a partial bond amortization table for the first two interest payments assuming that interest is paid on July 1 and January 1 and that the bonds sold based on the following scenario. 2. Record the journal entries relating to the bonds on January 1, July 1, and December 31 Market Rate 7% (Received $479,209 for the bond) Student's response to Q3 (only answers provided in box below will be marked) Semi Interest Interest to be Discount Unamortized annual Expense Amortization Discount Interest Periods Bond Carrying Amount paid Jan 1 2018

Answer 1

Solution

Discount on Bond = $ (500,000 - 479,209) = $ 20,791

This will be amortized to the interest expense account over the period of the Bond.

The bond was issued on January 1, 2019 so the first two interest paymnets are shown in the following Table:

Semi Annual Interest Period	Interest Expense	Interest to be paid	Discount Amortization	Unamortized Discount	Bond Carrying amount
July 1/2019	$ 17,079.1	$ 15,000	$ 2,079.1	$ 18,711.9	$497,920.9
Jan 1/2020	$ 17,079.1	$ 15,000	$ 2,079.1	$ 16,632.8	$495,841.8

Note:

Interest Expense = (6% of $ 500,000) * 6/12 = $ 15,000

Discount Amortization amount for each period = $ 20,791 / 10 = $ 2,079.1

Bond Carrying Amount = Bond's Face Value - Total discount amortized

Therefore, For July 1, 2019 = $ (500,000 - 2,079.1) = $ 497,920.9
For Jan 1, 2020= $ 500,000 - $ (2,079.1 + 2,079.1) = $ 495,841.8

Journal Entries:

Date	Particulars	L.F	Amount ($)-Dr	Amount ($)-Cr
Jan 1, 2019	Cash    Discount on Bond paybale To Bonds Payable	-	479,209 20,791	500,000
July 1, 2019	Interest Expense To Discount on Bond payable To Cash	-	17079.1	2,079.1 15,000
Jan 1, 2020	Interest Expense To Discount on Bond payable To Cash	-	17079.1	2,079.1 15,000