George\'s Hamburgers issued 7%, 10-year bonds payable at 90 on December 31, 2016

Question

George's Hamburgers issued 7%, 10-year bonds payable at 90 on December 31, 2016. At December 31, 2018, George reported the bonds payable as follows: George's pays semiannual interest each June 30 and December 31. Read the requirements. a. What is the maturity value of the bonds? $ b. What is the carrying amount of the bonds at December 31, 2018? $ c. What is the semiannual cash interest payment on the bonds? $ d. How much interest expense should the company record each year? $ Requirement 2. Record the June 30, 2018, semiannual interest payment and amortization of the discount.

Explanation / Answer

Maturity value of the bond is the face value payable which is 300000

2.Carrying value shall be the bond value less any discount charges which has to be propotionately discounted.

In this case. the discount shall be reduced over life of bond of 10 years. So discount reduced each year is 24000÷10 is 2400

The carrying value at 2018 = 300000 -2400 -2400 is 295200

Income statement Dr 10500

Interest Account cr 10500

Income statement Dr ( 2400÷2) = 1200

To Discount on issue of bond account cr 1200

c. Semiannual interest payment is 300000 × 7%×1/2 = 10500

d. Interest suspense should be recorded on the reducing interest method

e. Entries for 2018 June

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