Journalizing, and reporting bond transactions [30 min]
Danny’s Hamburgers, Inc., issued 9%, 10-year bonds payable at 85 on December 31, 2010. At December 31, 2012, Danny reported the bonds payable as follows:
Long-term debt: | ||
Bonds payable . . . | $ 700,000 | |
Less: Discount . . . | 84,000 | $ 616,000 |
Danny uses the straight-line amortization method and pays semiannual interest each June 30 and December 31.
Requirements
1. Answer the following questions about Danny’s bonds payable:
a. What is the maturity value of the bonds?
b. What is the carrying amount of the bonds at December 31, 2012?
c. What is the annual cash interest payment on the bonds?
d. How much interest expense should the company record each year?
2. Record the June 30, 2013, semiannual interest payment and amortization of discount.
3. What will be the carrying amount of the bonds at December 31, 2013?
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