Question

** Answer is also posted BUT - Can anyone specifically explain to me how they got a bonds payable of 913 in question B??**

A company issued a $200,000, 6%, 10-year bond at the yield of 8%. Interest is paid semi-annually. The bond is sold to investors for 86.41

Required:a.Determine the sales price of the bond.

200,000 x .8641 = 172,820

b. Prepare the journal entry to record the first interest payment.

Interest Expense 6913

Note Payable 913

Cash 6000

Answer 1

Since the market interest rate (8%), which is yield, is higher than the coupon rate of 6%, the bond is issued at discount.

The discounted price is $172,820.

The face value is $200,000.

Discount amount = [(Sale price × market rate) - (Face value × coupon rate)] / Semi-annual payments

                            = [(172,820 × 8%) - [(200,000 × 6%)] / 2

                            = (13,825.60 – 12,000) / 2

                            = 912.80

                            = 913 rounded