On January 1 2015, Patterson Inc. issued $100,000, 8% bonds for $92,278. The mar

Question

On January 1 2015, Patterson Inc. issued $100,000, 8% bonds for $92,278. The market rate of interest for these bonds on January 1, 2015 was 10%. Interest is payable annually on December 31. The maturity date of the bonds is December 31, 2019. Please answer the following questions. (1) Prepare the discount amortization table only up to December 31, 2016. (2) Prepare the journal entry on December 31, 2016, based on US GAAP and IFRS, respectively. (3) Prepare bonds section in the 2016 balance sheet, based on US GAAP and IFRS, respectively.

Explanation / Answer

Answer 1 Discount amortization table only up to December 31, 2016 Date Interest payment (8% of Bond Payable) Interest Expense (10% of Previous book value) Amortization of bond discount Debit balance in Bond Discount Credit balance in Bonds Payable Book value of the bond Jan.1,2015 $7,722.00 $100,000.00 $92,278.00 Dec.31,2015 $8,000.00 $9,227.80 $1,227.80 $6,494.20 $100,000.00 $93,505.80 Dec.31,2016 $8,000.00 $9,350.58 $1,350.58 $5,143.62 $100,000.00 $94,856.38 Answer 2 Journal Entry as on December 31, 2016 - Second Interest payment Date Account Titles Debit Credit Dec.31,2016 Interest Expense $9,350.58 Discount Bonds Payable $1,350.58 Cash $8,000.00 Answer 3 Bonds section in the 2016 balance sheet Patterson Inc. Balance Sheet as on 31st December, 2016 (Partial) Liabilities and Equity Long term debt Bonds Payable (Gross) $100,000.00 Less : Discount on bonds payable $5,143.62 $94,856.38

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