On January 1, 2009, Clintwood Corporation issued a $50,000, ten-year, 6% bond pa

Question

On January 1, 2009, Clintwood Corporation issued a $50,000, ten-year, 6% bond payable (interest payable semi annually on June 30 and December 31). For the three assumptions below, complete the following schedule assuming the accounting year ends December 31, and straight-line amortization is used:

transaction sales@100 sale @ 96 sale @ 104
assumption 1 auumption 2 assumption 3
a. cash rcvd on issuance
b. 2009 interest expense
c. net bond carrying
value on 12/31/2010
balance sheet
D. Provide the June 30 and December 31, 2009 journal entries to record interest expense and the payment of interest.

Explanation / Answer

For Sale at 100: A. Received $50,000 b. Interest Expense = 50,000*.06 = 3,000 c. Net bond carrying value on 12/31/10 = 50,000 d. June 30 Debit: Bond interest expense 1500 Credit: Cash 1500 December 31 Debit: Bond interest expense 1500 Credit: Cash 1500 For sale at 96: a. 50,000*.96 = 48,000 b total interest paid over life of bond = 30,000 + 2,000 = 32,000 Divide by 10 to find interest in one year = 3,200. Interest paid in 2009 is 3,200 c. 48,000 + 200 = 48,200 (200 is from the interest expense of 3200 minus the cash paid 3000) d. June 30 Debit Bond interest expense 1600 Credit cash 1500 Credit Discount on bonds payable 100 December 31 Debit bond interest expense 1600 Credit cash 1500 Credit discount on bonds payable 100 For sale at 104 a. 50,000*1.04 = 52,000 b. total interest paid over life of bond = 30,000 – 2,000 = 28,000 Divide by 10 10 to find interest in one year = 2,800 Interest paid in 2009 is 2800 c. 52,000 – 200 = 51,800 (200 is from the cash paid of 3000 minus interest expense of 2800) d. June 30 Debit Bond interest expense 1400 Debit Premium on bonds payable 100 Credit Cash 1500 December 31 Debit bond interest expense 1400 Debit Premium on bonds payable 100 Credit cash 1500

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