M10-9 Computing and Reporting a Bond Liability Issued at a Discount [LO 10-3] E-

Question

M10-9 Computing and Reporting a Bond Liability Issued at a Discount [LO 10-3]

E-Tech Initiatives Limited plans to issue $500,000, 10-year, 5 percent bonds. Interest is payable annually on December 31. All of the bonds will be issued on January 1, 2016. Show how the bonds would be reported on the January 2, 2016, balance sheet if they are issued at 98. (Negative amounts should be indicated by a minus sign.)

M10-9 Computing and Reporting a Bond Liability Issued at a Discount [LO 10-3]

E-Tech Initiatives Limited plans to issue $500,000, 10-year, 5 percent bonds. Interest is payable annually on December 31. All of the bonds will be issued on January 1, 2016. Show how the bonds would be reported on the January 2, 2016, balance sheet if they are issued at 98. (Negative amounts should be indicated by a minus sign.)

E-TECH INITIATIVES LIMITED Balance Sheet (partial) As of January 2, 2016 Long-Term Liabilities Bonds Payable Discount on Bonds Payable Carrying Value $0

Explanation / Answer

Long-Term Liabilities:

Bonds Payable

$500000

Less: Discount on Bonds Payable

(10000)

Carrying value

$490000

Note: The premium is calculated as the discount of the issue price ($490000 = 98% × $500000).

Long-Term Liabilities:

Bonds Payable

$500000

Less: Discount on Bonds Payable

(10000)

Carrying value

$490000

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