Question

On January 1, 2020, Indigo Company sold 12% bonds having a maturity value of $650,000 for $753,808, which provides the bondholders with a 8% yield. The bonds are dated January 1, 2020, and mature January 1, 2025, with interest payable Decembe of each year. Indigo Company allocates interest and unamortized discount or premium on the effective-interest basis. Prepare the journal entry at the date of the bond issuance. (Round answer to decimal places, eg. 38,548. If no entry is required select "No Entry" for the account titles and enter for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit January 1,2020

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Answer 1

Worknig Notes:
		Par Value of the Bonds (A) =	$                       6,50,000
		Issued price	$                       7,53,808
		Premium issued	$                       1,03,808
		Coupon Rate (B) =	12%
		Coupon amount (AXB)	$                           78,000
SOLUTION 2
	Schedule of Interest revenue and bond premium Amortization
	Effective interest Method
	Date	Cash Paid	Interest @ 8 % on Carrying amount	Premium Amortized	Caryying Amount
	01/01/2020				$         7,53,808
	31/12/2020	$                                                                    78,000	$                     60,305.00	$          17,695.00	$         7,36,113
	31/12/2021	$                                                                    78,000	$                     58,889.00	$          19,111.00	$         7,17,002
	31/12/2022	$                                                                    78,000	$                     57,360.00	$          20,640.00	$         6,96,362
	31/12/2023	$                                                                    78,000	$                     55,709.00	$          22,291.00	$         6,74,071
	31/12/2024	$                                                                    78,000	$                     53,926.00	$          24,071.00	$         6,50,000
SOLUTION 1:	Journal entry for record the bonds issuance
	Journal Entries
	Date	Account Title and explanation	Debit	Credit
	Jan, 01 2020	Cash	$                       7,53,808
		Bonds Payable		$             6,50,000
		Premium on Bonds Payable		$             1,03,808
		(Reocrd the issuance of Bonds)
SOLUTION 3:	Journal entry for record the interest payment and and the amortization for 2020
	Journal Entries
	Dec 31, 2020	Interest Expenses	$                           60,305
		Premium on Issue on Bonds	$                           17,695
		Cash		$                78,000
SOLUTION 4:	Journal entry for record the interest payment and and the amortization for 2022
	Journal Entries
	Dec 31, 2022	Interest Expenses	$                           57,360
		Premium on Issue on Bonds	$                           20,640
		Cash		$                78,000