Recording and Reporting a Bond Issued at a Discount (with Discount Account) E10-

Question

Recording and Reporting a Bond Issued at a Discount (with Discount Account) E10-8 L010-4 Park Corporation is planning to issue bonds with a face value of $600,000 and a coupon rate of 7.5 per- cent. The bonds mature in four years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Park uses the effective-interest amortization method and also uses a discount account. Assume an annual market rate of interest of 8.5 percent. of 7.5 per Required . Provide the journal entry to redord the issuance of the bonds. 2. Provide the journal entry to record the interest payment on June 30 of this year. 3. What bonds payable amount will Park report on its June 30 balance sheet?

Explanation / Answer

WN1. Issue price of Bond = Interest Amount * Sum of PFV of 4.25% for 8 periods + Redemption amount * PVF of 4.25% for 8th Period = $600000*7.5%/2*6.664 + $600000*0.7168                              580,020.00 1 JE Cash A/c Dr 580020 Discount on Bond Payable A/c Dr 19980 To Bond Payable 600000 (Being Bonds Issued) 2 30.6 Interest Exp A/c Dr      24,651 [580020*4.25%] Discount on Bond Payable         2,151 Cash 22500 [600000*7.5%*6m/12m] (Being Intt paid on Bonds) 3 BALANCE SHEET AS AT 30 JUNE LONG TERM LIABILITES BOND PAYABLE $600,000 Less: Unamortised Discount on bond payable -17829 (19980-2151] $582,171

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