Question

Using a Discount Amortization Table (Straight Line)

Panamint Candy Company prepared the following amortization table for $300,000 of 5-year, 9% bonds issued and sold by Panamint on january 1, 2021, for $285,000:

Period	Cash Payment (Credit)	Interest Expense (Debit)	Discount on Bonds Payable (Credit)	Discount on Bonds Payable Balance	Carrying Value
At issue				$15,000	$285,000
06/30/21	$13,500	$15,000	$1,500	13,500	286,500
12/31/21	13,500	15,000	1,500	12,000	288,000
06/30/22	13,500	15,000	1,500	10,500	289,500
12/31/22	13,500	15,000	1,500	9,000	291,000
06/30/23	13,500	15,000	1,500	7,500	292,500
12/31/23	13,500	15,000	1,500	6,000	294,000
06/30/24	13,500	15,000	1,500	4,500	295,500
12/31/24	13,500	15,000	1,500	3,000	297,000
06/30/25	13,500	15,000	1,500	1,500	298,500
12/31/25	13,500	15,000	1,500	0	300,000

Required:

1. Prepare the entry to recognize the sale of the bonds on january 1, 2021.

2021 Jan. 1	Cash
	Discount on Bonds Payable
	Bonds Payable
	Record issuance of bonds at discount

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1. When bonds are issued, any premium or discount is recorded in a separate valuation account.

2. Prepare the entry to recognize the first interest payment on June 30, 2021.

2021 June 30	Interest Expense
	Discount on Bonds Payable
	Cash
	Record interest expense

Feedback

2. An amortization table helps calculate the proper amortization of bond premium or discount. They are particularly helpful when the effective interest rate method is used; however, this problem amortizes the premium using the straight-line method.

3. Determine the interest expense for these bonds that Panamint will report on its 2023 income statement.
$

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3. Any premium or discount is amortized to interest expense over the life of the loan.

4. Indicate how these bonds will appear in Panamint's December 31, 2024 balance sheet.

Panamint Candy Company
Balance Sheet (partial)
December 31, 2024
Bonds payable:
9% Bonds, due 2025	$
Less: Discount on Bonds Payable		$

Answer 1

Answer to Requirement 1. Credit Debit 285,000 15,000 Date General Journal 2021 Cash Jan 1 Discount on Bonds Payable Bonds Payable (Record issuance of bonds at discount) Answer to Requirement 2. 300,000 Credit 1,500 13,500 Date General Journal Debit 2021 Interest Expense 15,000 June 30 Discount on Bonds Payable Cash (Record interest expense) Answer to Requirement 3. Interest expense to be reported in 2023 Income Statement = $15,000 + $15,000 Interest expense to be reported in 2023 Income Statement = $30,000 Answer to Requirement 4. Panamint Candy Company Balance Sheet (Partial) December 31, 2024 Bonds Payable: 9% Bonds, due in 2025 Less: Discount on Bonds Payable 300,000 3,000 297,000