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ID: 2451388 • Letter: W

Question

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Interest
Periods

Interest to
Be Paid

Interest Expense
to Be Recorded

Discount
Amortization

Unamortized
Discount

Bond
Carrying Value

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Link to Text

Date

Account Titles and Explanation

Debit

Credit

Jan. 1, 2014

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Date

Account Titles and Explanation

Debit

Credit

Dec. 31, 2014

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Date

Account Titles and Explanation

Debit

Credit

Jan. 1, 2015

Cole Corporation issued $405,000, 7%, 22-year bonds on January 1, 2014, for $363,686. This price resulted in an effective-interest rate of 8% on the bonds. Interest is payable annually on January 1. Cole uses the effective-interest method to amortize bond premium or discount.

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Explanation / Answer

Bond Value = $405000

Issue value = $363686

Discount on issue = 405000-363686 = $41314

The nominal difference of 5.37 is due to rounding off by excel

Journal entry for issue

December 31 2014 entry

Journal entry on Jan 1 2015

Interest Period Interest to be paid Interest to be recorded Discount amortisation Unamortised discount Bond Issue value Bond Carryiing Value 0 41314.00 405000.00 363686.00 1 28350 29094.88 744.88 40569.12 405000.00 364430.88 2 28350 29154.47 804.47 39764.65 405000.00 365235.35 3 28350 29218.83 868.83 38895.82 405000.00 366104.18 4 28350 29288.33 938.33 37957.49 405000.00 367042.51 5 28350 29363.40 1013.40 36944.09 405000.00 368055.91 6 28350 29444.47 1094.47 35849.61 405000.00 369150.39 7 28350 29532.03 1182.03 34667.58 405000.00 370332.42 8 28350 29626.59 1276.59 33390.99 405000.00 371609.01 9 28350 29728.72 1378.72 32012.27 405000.00 372987.73 10 28350 29839.02 1489.02 30523.25 405000.00 374476.75 11 28350 29958.14 1608.14 28915.11 405000.00 376084.89 12 28350 30086.79 1736.79 27178.32 405000.00 377821.68 13 28350 30225.73 1875.73 25302.58 405000.00 379697.42 14 28350 30375.79 2025.79 23276.79 405000.00 381723.21 15 28350 30537.86 2187.86 21088.93 405000.00 383911.07 16 28350 30712.89 2362.89 18726.05 405000.00 386273.95 17 28350 30901.92 2551.92 16174.13 405000.00 388825.87 18 28350 31106.07 2756.07 13418.06 405000.00 391581.94 19 28350 31326.56 2976.56 10441.51 405000.00 394558.49 20 28350 31564.68 3214.68 7226.83 405000.00 397773.17 21 28350 31821.85 3471.85 3754.97 405000.00 401245.03 22 28350 32099.60 3749.60 5.37 405000.00 404994.63