Question

Accounting for Bonds Payable On January 1, 2015, Crabb & Co. issued 10-year bonds with a total face value of $500,000. The bond requires annual interest payments on December 31 at a stated rate of 6%. Bonds with similar features are discounted in the market at 8%

.1. DATE ACCOUNT NAME DEBIT CREDIT BALANCE SHEET INCOME STMT A = L + E R - E 01/01/15

DATE

ACCOUNT NAME

DEBIT

CREDIT

BALANCE SHEET

INCOME STMT

A

=

L

+

E

R

-

E

01/01/15

2.Prepare the entry at 12/31/15 to record interest expense, cash paid, and discount amortization. DATE ACCOUNT NAME DEBIT CREDIT BALANCE SHEET INCOME STMT A = L + E R - E 12/31/15

DATE

ACCOUNT NAME

DEBIT

CREDIT

BALANCE SHEET

INCOME STMT

A

=

L

+

E

R

-

E

12/31/15

Answer 1

Table Value Based on
n=	10	Years
i=	8%
Cash Flow	Amount	Present Value
Interest - $500,000 X 6%	30,000	201,302
		($30,000 X 6.71008)
Principal	500,000	231,595
		($500,000 X 0.46319)
Price of Bonds		432,897
Discount on Bonds		67,103

DATE	ACCOUNT NAME	DEBIT	CREDIT	BALANCE SHEET					INCOME STMT
				A	=	L	+	E	R	-	E
1/1/2015	Cash	$ 432,897		$        432,897	=		+			-
	Discount on Issue of Bond	$   67,103			=		+			-
	Bonds Payable		$     500,000		=	$        432,897	+			-
	(Record the issue of Bonds at Discount)				=		+			-
					=		+			-
12/31/2015	Interest Expense (432897*8%)	$   34,632			=		+	$ -34,632		-	$ 34,632
	Discount on Issue of Bonds		$   4,632		=	$     4,632	+			-
	Cash		$ 30,000	$ -30,000	=		+			-
	(Record the interest paid - I st Year)				=		+			-
				$ 402,897	=	$ 437,529	+	$ -34,632	$          -	-	$ 34,632