E10-8 Recording and Reporting a Bond Issued at a Discount (with Discount Account

Question

E10-8 Recording and Reporting a Bond Issued at a Discount (with Discount Account) LO10-4

Park Corporation is planning to issue bonds with a face value of $800,000 and a coupon rate of 7.5 percent. The bonds mature in 8 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Park uses the effective-interest amortization method and also uses a discount account. Assume an annual market rate of interest of 8.5 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 June 30 of this year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

3. What bond payable amount will Park report on its June 30 balance sheet? (Enter all amounts with a positive sign.)

Explanation / Answer

Issue price: Present value of interest of $ 30,000 for 16 periods at 4.25% (Annuity i.e.11.44) 343200 Present value of maturity value of $ 800000 at end of period16 (PVf i.e.0.5138) 411040 Issue price: 754240 Amortization table: Date Cash interest Interest Discount Amortized Unamortized Carrying Expense Discount Value of Bonds Jan 1Yr-1 45760 754240 June30 Yr-1 30000 32055 2055 43705 756295 Journal Entries: Date Accounts title and explanation Dr. Cr. jan1 Yr1 Cash Account Dr. 45,760 Discount on Bonds payable Dr. 754,240         Bonds payable 800,000 June30 Yr1 Interest expense Dr. 32055          Cash Account 30000          Discount on Bonds payable 2055 Bonds payable Amouont shown in Balance Sheet on June30: Bonds payable (Gross) 800,000 Less: Discount on bonds payable 43705 Book value of bonds payable 756,295

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