PROBLEM3 Simons C January 1, 2018 at 92.3. The bonds pay interest on June 30 and

Question

PROBLEM3 Simons C January 1, 2018 at 92.3. The bonds pay interest on June 30 and December o issued 10-year, 8% bonds with a face value of $100,000 on 31 of each year. Assume market-io Intest 1. Will the bonds be issued at Par, at a Premium or at aDiscount? 2. In the journal paper provided, prepare the Journal Entry to record the issuance of the bonds. 3. Using the chart provided below, prepare the Bond Amortization Table for The first 2 YEARS of the bond. 4. In the journal paper provided, prepare the Journal Entries to record interest on June 30, 2018 AND on December 31, 2018 using the Effective Interest method of amorization. 5. Show how the bonds and any related accounts will appear on the December 31, 2018 Financial Statements DATE ACCOUNTS DEBIT CREDIT Bond paveble loterest Interest Payment Expense Discount Premium or Premium Carrying Or Value of Bond Amortization Discount Bal 01/01/2018

Explanation / Answer

Answer1. The bonds will be issued at the discount as the stated rate is less than the market rate prevailing. The investor is willing to invest in the bonds only when these are lower than par value for the loss of income in terms of interest.

Req 2

Date Accounts Debit Credit Jan 1 2018 Cash Account Dr. 92300 Discount on Bonds payable Dr. 7700     Bonds Payable 100000 Req 3: Date Interest Interest Discount Discount Carrying value Payments Payment Amortization Balance of Bond June 30 2018 4000 4615 615 7085 92915 Dec 31 2018 4000 4646 646 6439 93561 June 30 2019 4000 4678 678 5761 94239 Dec 31 2019 4000 4712 712 5049 94951 Req 4: Date Accounts Debit Credit Jue 30 2018 Interest Expense Dr. 4615      Discount on Bonds payable 615      Cash Account 4000 Dec 31 2018 Interest Expense Dr. 4646      Discount on Bonds payable 4000      Cash Account 646 Req 5: Long-term liabilities; Bonds payable 100,000 Less: Discounts on bonds payable 6439 Net value of Bonds payable 93,561

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