Question

D. Prepare the Journal entry for the issuance of the bond, subsequent payments of interest and amortization of discounts, and final payment of the principal Illustration #2 - BOND issued @ DISCOUNT Sarish Co. issues $100,000 Bond on Jan 1, 2020, due in 5 years on Dec 31, 2024 with 7% stated interest rate payable annually at year-end. At the time of issue, the market rate for such hones is 9% A. Compute the present value of the bond IV of the principal TV of the interest payments PV (selling price) of the bonds Accounts Date Jan 1, 2020 Debit Credit Dec 31, 2020 B. Interest Computation & Amortization of Discounts or Premium Interest Computation Discount on Bond Payable Dec 31, 2011 Dec 31, 2012 Dec 31, 2003 C. Prepare Blond Amortization Schedule Tec 31, 2014 Bond Amortization Schedule Annual Interest Payment 5.Year, 7 Seated Interest Rand field to Yield market rate of 9 Date Cash Interest Discount Hoods Discount Carrying Paid Expense Amortized Payable Value Jan 1, 2010 Dec 31, 2020 Dec 31, 2021 Dec 31, 20:22 Dec 31, 2023 Dec 31, 2024

Answer 1

Ans-(A)

AMOUNT PV of Principal 100000/(1+9%)^5 64,993 PV of Interest payments Working 27,228 PV (selling price) of bonds 92,221

Workings:(PV taking 9% rate)

Year PV 1 2 Int @ 7% 7,000 7,000 7,000 7,000 7,000 3 6,422 5,892 5,405 4,959 4,550 27,228 4 5

Ans-(B)

PV of Bonds = 92221

Discount = 100000 - 92221 = 7779

Year OPEN BAL Liab Int @ 9% Cash Payment @7% Discount Amort 2020 92221 8300 7000 1300 2021 93521 8417 7000 1417 2022 94937 8544 7000 1544 2023 96482 8683 7000 1683 2024 98165 8835 7000 1835

Ans- (C )

Amortization Schedule

Year Cash Paid 0 2020 2021 Interest Expense Discount Amortization Bonds Payable Discount Balance Carrying Value Opening Carr Val 9% Int Exp-Cash Paid 100000 7,779 92,221 7,000 8300 1300 100000 6,479 93,521 7,000 8417 1417 100000 5,063 94,937 7,000 8544 1544 100000 3,518 96,482 7,000 8683 1683 100000 1,835 98,165 7,000 8835 1835 100000 0 1,00,000 2022 2023 2024

Ans-(D)

Journal Entries DATE DETAILS DEBIT CREDIT 01-Jan-20 Cash 92,221 Discount on Bonds 7,779 Bonds Payable 1,00,000 8300 31-Dec-20 Interest Expense Discount Amortization Bank 1300 7000 8417 31-Dec-21 Interest Expense iscount Amortization Bank 1417 7000 8544 31-Dec-22 Interest Expense Discount Amortization Bank 1544 7000 8683 31-Dec-23 Interest Expense Discount Amortization Bank 1683 7000 8835 31-Dec-24 Interest Expense Discount Amortization Bank 1835 7000 100000 31-Dec-24 Bonds Payable Bank 100000