Question

On December 31, 2017, Plank Corporation issued $800,000, 6%, 5-year bonds for $735,100. The bonds were sold to yield an effective-interest rate of 8%. Interest is paid annually on December 31. The company uses the effective-interest method of amortization. Prepare a bond discount amortization schedule which shows the amortization of discount for the first two interest payment dates. (Round answers to 0 decimal places, e.g. 5,275.) PLANKCORPORATION Bond Discount Amortization Effective-Interest Method-Annual Interest Payments 6% Bonds Issued at 8% Interest Periods Interest to Be Paid Interest Expense Discount Amortization Unamortized Discount Carrying Value of Bonds 12/13/17 (Issue date) 12/31/18 $ 12/31/19 Prepare the journal entries that Plank Corporation would make on December 31, 2017, December 31, 2018 and December 31, 2019 related to the bond issue. (Credit account titles are automatically Indented when the amount is entered. Do not Indent manually. Round answers to o decimal places, e.g. 5,275. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit Dec. 31, 2017

Answer 1

Face Value of Bonds = $800,000
Issue Value of Bonds = $735,100

Annual Coupon Rate = 6.00%
Annual Coupon = 6.00% * $800,000
Annual Coupon = $48,000

Annual Interest Rate = 8.00%

PLANK CORPORATION Bond Discount Amortization Effective Interest Method - Annual Interest Payments 6% Bonds Issued at 8% Interest Periods Interest to be Paid Interest Expense Discount Amortization Unamortized Discount Carrying Value of Bonds 12/31/17 12/31/18 12/31/19 $ $ 48,000 $ 48,000 $ 58,808$ 59,673 $ $ 10,808 $ 11,673 $ 64,900 $ 54,092 $ 42,419 $ 735,100 745,908 757,581 Credit $ $ Debit 735,100 64,900 $ 800,000 $ 58,808 Date Account Titles and Explanation Dec. 31, 2017 Cash Discount on Bonds Payable Bonds Payable Dec. 31, 2018 Interest Expense Discount on Bonds Payable Cash Dec. 31, 2019 Interest Expense Discount on Bonds Payable Cash $ $ 10,808 48,000 $ 59,673 $ $ 11,673 48,000