Deng Company issued $563,000 of 5-year, 6% bonds at 97 on January 1, 2011. The b

Question

Deng Company issued $563,000 of 5-year, 6% bonds at 97 on January 1, 2011. The bonds pay interest twice a year.

Prepare the journal entry to record the issuance of the bonds. (For multiple debit/credit entries, list amounts from largest to smallest e.g. 10, 5, 3,2.) Compute the total cost of borrowing for these bonds. Prepare the journal entry to record the issuance of the bonds, assuming the bonds were issued at 103. (For multiple debit/credit entries, list amounts from largest to smallest e.g. 10, 5, 3, 2.) Compute the total cost of borrowing for these bonds.

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Part A:

Cash (563000*97%) Dr. 546110

Discount on Bonds Payable (563000 - 546110) Dr. 16890

Bonds Payable Cr. 563000

Total Cost of Borrowing = Interest Paid + Discount Amortized = 563000*6%*5 + 16890 = 185790

Part B:

Cash (563000*103%) Dr. 579890

Bonds Premium (579890 - 563000) Cr. 16890

Bonds Payable Cr. 563000

Total Cost of Borrowing = Interest Paid - Discount Adjusted = 563000*6%*5 - 16890 = 152010

Thanks.

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