Face Stated Rate Issued at Effective Rate Life of the Bonds in years Interest Pa

Question

Face Stated Rate Issued at Effective Rate Life of the Bonds in years Interest Payments Per Year Total Number o Interest Payments S 4,000,000 10 87.53785% 10% (a) Prepare the joumal entry to rocoed the issuance of the bonds on January 1, 2012 0101/12 b) Prepare a bond discount amortization schedale I-Bar Co Bond Discount Amortization Effective Interest Method Semiannual Interest Payments Interest Interest Bond Carrying aneual Interest Periods Issue dane to be Expense to Amortization Discount Paid be Reoorded 1/2012 2/31/2012 /1/2013 12/31/2013 71/2014 2/31/2014 /1/2015 12/31/2015 1/2016 12/31/2016 10 (c)Prepare the journal entries for interest and the amortization of the discount in 2012 07/01/12 1231/12 (d) Show the balance sheet peresentation of the bond liability at December 31, 2014

Explanation / Answer

Solution a:

Face value of bond = $4,000,000

Coupon rate = 8%, 4% semiannual

Issue price = $4,000,000 * 87.53875% = $3,501,550

Effective rate of interest = 10%, 5% semiannual

Life of bond = 10 years

Interest payment per year = $4,000,000 * 10% = $400,000

Total number of interest payment = 10*2 = 20

Solution b:

Solution c:

Solution d:

Journal Entries Date Particulars Debit Credit 31-Dec-16 Cash Dr $3,501,550.00 Discount on issue of bond Dr $498,450.00          To Bond Payable $4,000,000.00 (To record issue of bond at discount)

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