Enviro Company issues 10%, 10-year bonds with a par value of $250,000 and semian

Question

Enviro Company issues 10%, 10-year bonds with a par value of $250,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 12%, which implies a selling price of 88 1/2.

1. Prepare the journal entries for the issuance of the bonds. Assume the bonds are issued for cash on January 1, 2017.

2. Confirm that the bonds’ selling price is approximately correct. Use present value Table B.1 and Table B.3 in Appendix B. (Round all table values to 4 decimal places, and use the rounded table values in calculations.)

Explanation / Answer

Date Accounting titles & explanations Debit Credit 1/1/2017 cash (250000*88.5%) 221250 discount on bonds 28,750 bonds payable 250,000

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