Question

1. Myungsung Co., Ltd. face value of 1,000,000 won, face rate 10% (interest payment date is the end of each year), 10,000 The 3-year bond was issued on January 1, 2015. The market interest rate applied at the time of issuance It is 7%. [When calculating the present value, you can calculate it directly or use the coefficient tables below. Some singular differences may be ignored depending on the mountain method.]

[Reference 1] Current value coefficient table

Years, interest rate	6%	7%	8%	9%	10%
1	0.943	0.935	0.926	0.917	0.909
2	0.890	0.873	0.857	0.842	0.826
3	0.840	0.816	0.794	0.772	0.751
4	0.792	0.763	0.735	0.708	0.683
5	0.747	0.713	0.681	0.650	0.621

[Reference 2] Table of present value of pension

Years, interest rate	6%	7%	8%	9%	10%
1	0.943	0.935	0.926	0.917	0.909
2	1.833	1.808	1.783	1.759	1.736
3	2.673	2.624	2.577	2.531	2.487
4	3.465	3.387	3.312	3.240	3.170
5	4.212	4.100	3.993	3.890	3.791

• Question

1. Please provide the accounting treatment to be performed in connection with the issuance of bonds on January 1, 2015.
2. Calculate the amount of interest expense to be recognized in 2016 by Myungsung Co., Ltd. and provide the accounting treatment to be performed in connection with the calculation of interest expense on December 31, 2016.
3. On January 1, 2017, Myeongsung Co., Ltd. repaid the total amount of bonds early and paid the creditors 1,100,000 won. Please provide the accounting to be performed in this regard

Answer 1

	Amount	PV Factor	PV
Interest Payments	100,000	2.624	262,400
Face Value at maturity	1,000,000	0.816	816,000
Total			1,078,400

Date	Account Titles	Debit	Credit
Jan-01	Cash	1,078,400
2015	Bonds Payable		1,000,000
	Premium on Bonds Payable		78,400

Interest Expense for 2015 = 1078400 x 7% = 75,488
Interest Expense for 2016 = (1078400-100000+75488) x 7% = 73,772

Date	Account Titles	Debit	Credit
Dec-31	Interest Expense	73,772
2016	Premium on Bonds Payable	26,228
	Cash		100,000

Date	Account Titles	Debit	Credit
Jan-01	Bonds Payable	1,000,000
2017	Premium on Bonds Payable	27,660
	Loss on retirement of bonds	72,340
	Cash		1,100,000

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Answer 2

	Amount	PV Factor	PV
Interest Payments	100,000	2.624	262,400
Face Value at maturity	1,000,000	0.816	816,000
Total			1,078,400

Date	Account Titles	Debit	Credit
Jan-01	Cash	1,078,400
2015	Bonds Payable		1,000,000
	Premium on Bonds Payable		78,400

Interest Expense for 2015 = 1078400 x 7% = 75,488
Interest Expense for 2016 = (1078400-100000+75488) x 7% = 73,772

Date	Account Titles	Debit	Credit
Dec-31	Interest Expense	73,772
2016	Premium on Bonds Payable	26,228
	Cash		100,000

Date	Account Titles	Debit	Credit
Jan-01	Bonds Payable	1,000,000
2017	Premium on Bonds Payable	27,660
	Loss on retirement of bonds	72,340
	Cash		1,100,000

If you have any query, kindly comment with your query and please mark thumbs up.