On January 1 of this year, Clearwater Corporation sold bonds with a face value o

Question

On January 1 of this year, Clearwater Corporation sold bonds with a face value of $761,000 and a coupon rate of 6 percent. The bonds mature in 10 years and pay interest annually every December 31. Clearwater uses the straight-line amortization method and also uses a discount account. Assume an annual market rate of interest of 7 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answer to whole dollars.) Required: 1. Prepare the journal entry to record the issuance of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 2. Prepare the journal entry to record the interest payment on December 31 of this year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 3. How will the bonds be reported on Clearwater's December 31 Balance Sheet?

Explanation / Answer

Issue price: Present value of interest annual received for 10 years ( $ 45660* Annuity factor at 7% i.e. 7.0236) 320697.6 Present value of Maturity received at year-10 ($761000* 0.5083) 386816.3 ISSUE PRICE 707514 Journal Entry: a. Cash Account Dr. 707514 Discount on bonds payable (761000-707514) 53486     Bonds payable 761000 b. Interest expense Dr. 51009     Cash Account (761000*6%) 45660     Discount on Bonds payable (53486/10) 5349 Balance Sheet: Bonds payable 761000 Less: Disccount on bonds payable (53486-5349) 48137 Net balance in bonds payable 712863

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