Question

Suppose that ABC Co. were to issue a 5-year, $148,000 bond that had a coupon rate of 5% and paid interest annually under each of the following alternatives: (a) (b) (C) yield rate = 4%, assuming the issue price is $154,589.11. yield rate = 5%, assuming the issue price is $148,000. yield rate = 6%, assuming the issue price is $141,765.94. (a) Prepare the journal entries for both the issuance of the bond as well as the first interest payment when the yield rate is 4%. (Round answers to 2 decimal places, e.g. 15.25. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.) Account Titles and Explanation Debit Credit (To record issue of bonds) (To record interest payment)

Answer 1

Journal Entries Post Account Title and Explaination Date Debit Credit Ref. a Cash 154,589.11 Bonds Payable Premium on Bonds Payable |(To record issue of Bonds at Premium) $ 148,000.00 $ 6,589.11 Interest Expense ($154589.11 x 4%) Premium on Bonds Payable 6,183.56 $ 1,216.44 Cash (S148000x5%) $ 7,400.00 (To record Payment of Interest)

b Cash $ 148,000.00 Bonds Payable (To record issue of Bonds at Par) 148,000.00 Interest Expense ($148000x5%) 7,400.00 Cash 7,400.00 (To record Payment of Interest)

C Cash 141,765.94 Discount on Bonds Payable $ 6,234.06 Bonds Payable (To record issue of Bonds at Discount) 148,000.00 Interest Expense ($141765.94x 6%) Cash ($148000x4%) Discount on Bonds Payable (To record Payment of Interest on Bonds) $ 8,505.96 $ 5,920.00 $ 2,585.96