Please show all work. Eagle Corporation sold $500,000, 8%, 10-year bonds on Janu

Question

Please show all work.

Eagle Corporation sold $500,000, 8%, 10-year bonds on January 1, 2014. The bonds pay interest semiannually on June 30th and December 31st. The company uses straight-line amortization for premiums and discounts. Financial statements are prepared annually. (1) Prepare the journal entry on January 1, 2014 to record the issuance of the bonds assuming they sold at 99. (3 points) (2) Prepare the journal entry necessary on June 30th to record the first interest payment, assuming the bonds sold at 99. (3 points) (3) Calculate the carrying value of the bonds at the end of the fifth year (December 31, 2018). (2 points) (4) Calculate the total cost of borrowing. (2 points)

Explanation / Answer

Date Journal Debit credit 1/1/2014 Cash    495,000 Bond Discount        5,000 Bonds payable    500,000 6/30/2014 Interest Expense      20,000 Cash      20,000 (500000*8%*0.5) amortization of discount Discount        5,000 years              10 each year amortization            500 Carrying value of bond at the end of 5th Year Bond value    500,000 discount amortized for 5 yrs        2,500 (500*5) Carrying value of bond    497,500 Total cost of borrowing Bond discount        5,000 interest payable for 10 years    400,000 500000*8%*10years Total cost of borrowing    405,000

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