On Jenuary 1, 2016, the Diamond Associsation ssued bonds with a face value of $2

Question

On Jenuary 1, 2016, the Diamond Associsation ssued bonds with a face value of $226,000, a stated rate ofinterest of 7 percent, and a 10- year term to maturity Interest is peyable in cash on December 31 of each year The effective rate of interest was 9 percent at the time the bonds were issued The bonds sold for $196,992. Diamond used the efflective interest rate method to amortice the bond discount A Determine the amount of the discount on the day of is recognized on December 31",2016 Round your 8 Determine the amount of interest expense c. D Provide the journal entry necessary to record the December 31 2036 interest expense. if no answer to the nearest dollar aount Determine the carrying value of the bond hablity on December S·2046 Round your answer to the nearest doller amount entry is required explain why

Explanation / Answer

Year Date Face value of bonds Cash Interest Interest Expense Discount amortization Balance 0 January 01, 2016 226000 196992 1 December 31, 2016 15820 17729 1909 198901 2 15820 17901 2081 200982 3 15820 18088 2268 203251 4 15820 18293 2473 205723 5 15820 18515 2695 208418 6 15820 18758 2938 211356 7 15820 19022 3202 214558 8 15820 19310 3490 218048 9 15820 19624 3804 221853 10 15820 19967 4147 226000 Requirement 1 Discount on bonds on the day of issue =Face value-Issue price =226000-196992 = 29008 Requirement 2 Amount of Interest to be recognized on December 31, 2016 As given in the table in the year 1 = 17729 Requiremetn 3 Carrying value of bond liability on December 31, 2016 As given in the table at the end of year 1 = 198901 Requiremnt 4 December 31, 2016 Interest Revenue 17729 Discount on issue of bonds 1909 Cash 15820 To record the interest expense for the year 2016 on issuance of bonds

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