Whitmore Company issued dollar 579,000 of 5-year, 9% bonds at 95 on January 1, 2

Question

Whitmore Company issued dollar 579,000 of 5-year, 9% bonds at 95 on January 1, 2014. The bonds pay interest twice a year. Prepare the journal entry to record the issuance of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Compute the total cost of borrowing for these bonds. Total cost of borrowing dollar Prepare the journal entry to record the issuance of the bonds, assuming the bonds were issued at 102. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Compute the total cost of borrowing for these bonds, assuming the bonds were issued at 102. Total cost of borrowing dollar

Explanation / Answer

1.

Account title and explanations

Debit

Credit

Cash ($579,000 * 0.95)

$ 550,050.00

Discount on issue of bonds payable ($579,000 * 0.05)

$ 28,950.00

Bonds payable

$ 579,000.00

Interest payable during the duration of bond = $579,000 * 9% *5 = $260,550

Total cost of borrowings = Interest cost + Discount on issue of bonds = $260,550 + $28,950 = $289,500

2.

Account title and explanations

Debit

Credit

Cash ($579,000 * 1.02)

$ 590,580.00

Premium on issue of bonds payable ($579,000 * 0.02)

$ 11,580.00

Bonds payable

$ 579,000.00

Interest payable during the duration of bond = $579,000 * 9% *5 = $260,550

Total cost of borrowings = Interest cost - Premium on issue of bonds = $260,550 - $11,580 = $248,970

Account title and explanations

Debit

Credit

Cash ($579,000 * 0.95)

$ 550,050.00

Discount on issue of bonds payable ($579,000 * 0.05)

$ 28,950.00

Bonds payable

$ 579,000.00

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.