Question

Blackberry Corporation sold $2,500,000 of 10 year 8% bonds on January 1, 2018.  The bonds were dated January 1, 2018 and pay interest on July 1 and January 1.  Blackberry uses the straight-line method to amortize and bond premium or discount.  Blackberry’s year end is December 31.

Instructions:

a.         Prepare all the necessary journal entries to record the issue of the bonds and bond interest expense for 2018, assuming:

            1.         that the bonds sold at 100 (face value)

            2.         that the bonds sold at 103

            3.         that the bonds sold at 96

b.         Show what the Balance Sheet would look like on December 31, 2018 for each bond issue.

Answer 1

Requirement:A

1.         that the bonds sold at 100 (face value)

Date	Account Titles and Explanation	Debit	Credit
1/1/2018	Cash	$         2,500,000
	Bonds Payable		$     2,500,000
	( To record bonds issue)
1/7/2018	Interest Expense	$             100,000
	Cash [2500000*4/100]		$         100,000
	( To record interest expense paid)
31/12/2018	Interest Expense	$             100,000
	Interest Payable [2500000*4/100]		$         100,000
	( To record interest expense payable)

2.         that the bonds sold at 103

Date	Account Titles and Explanation	Debit	Credit
1/1/2018	Cash	$         2,575,000
	Premium on Bonds Payable		$               75,000
	Bonds Payable		$         2,500,000
	(To record bond issued at premium )
1/7/2018	Interest Expense	$               96,250
	Premium on Bonds Payable[75000/20]	$                 3,750
	Cash		$            100,000
	( To record interest expense Paid)
31/12/2018	Interest Expense	$               96,250
	Premium on Bonds Payable[75000/20]	$                 3,750
	Interest Payable		$            100,000
	( To record interest expense Payable)

3.         that the bonds sold at 96

Date	Account Titles and Explanation	Debit	Credit
1/1/2018	Cash	$         2,400,000
	Discount on Bonds Payable	$             100,000
	Bonds Payable		$         2,500,000
	( To record bonds issue)
1/7/2018	Interest Expense	$             105,000
	Discount on Bonds Payable [100000/20]		$                 5,000
	Cash [2500000*4/100]		$            100,000
	( To record interest expense paid)
31/12/2018	Interest Expense	$             105,000
	Discount on Bonds Payable [100000/20]		$                 5,000
	Interest Payable [2500000*4/100]		$            100,000
	( To record interest expense payable)

Requirement:B

1.         that the bonds sold at 100 (face value)

Blackberry Corporation
Balance Sheet
For the Year Ended December 31, 2018
Long Term Liabilities:
Bonds Payable		$     2,500,000

2.         that the bonds sold at 103

Blackberry Corporation
Balance Sheet
For the Year Ended December 31, 2018
Long Term Liabilities:
Bonds Payable		$     2,500,000
Add: Premium on Bonds Payable		$           67,500
		$     2,567,500

3.         that the bonds sold at 96

Blackberry Corporation
Balance Sheet
For the Year Ended December 31, 2018
Long Term Liabilities:
Bonds Payable		$     2,500,000
Less: Discount on Bonds Payable		$           90,000
		$     2,410,000