Question
In: Accounting
On January 1, 2021, Splash City issues $300,000 of 7% bonds, due in 10 years, with...
On January 1, 2021, Splash City issues $300,000 of 7% bonds, due
in 10 years, with interest payable semiannually on June 30 and
December 31 each year.
Assuming the market interest rate on the issue date is 8%, the
bonds will issue at $279,615.
2. Record the bond issue on January 1, 2021, and the first two semiannual interest payments on June 30, 2021, and December 31, 2021.
- Record the bond issue.
|
- Record the first semiannual interest payment.
|
- Record the second semiannual interest payment.
Note: Enter debits before credits.
|
Solutions
Expert Solution
| WORKING NOTES : 1 | ||||
| Calculation of coupon amount and amortization of Discount per period | ||||
| Par Value of the bonds = | $ 3,00,000 | |||
| Issue price of the bond | $ 2,79,615 | |||
| Discount on issuance of bonds | $ 20,385 | |||
| Coupon rate | 7% | |||
| Coupon amount = | $ 21,000 | |||
| Half year coupon amount = | $ 10,500 | |||
| Life of the Bonds = | 10 | Years | ||
| Period of the bonds = | 20 | Period | ||
| Discount on issue of Bonds | $ 20,385 | |||
| Divide By | "/" By | |||
| Period of The Bonds | 20 | Periods | ||
| Discount amortization | $ 1,019 | Per Periods | ||
| WORKING NOTES : 2 | ||||
| calculation of interest expenes per periods | ||||
| Coupon Amount Per half year | $ 10,500 | |||
| Add: Discount value | $ 1,019 | |||
| Interest Expenses per half year | $ 11,519 | |||
| ANSWER =1 | ||||
| Journal Entries | ||||
| Date | Account Title and explanation | Debit | Credit | |
| Jan 01,2021 | Cash | $ 2,79,615 | ||
| Discount on issuance of Bonds | $ 20,385 | |||
| Bonds Payable | $ 3,00,000 | |||
| ( Record the issuance of the bonds) | ||||
| ANSWER =2 | ||||
| Journal Entries | ||||
| Date | Account Title and explanation | Debit | Credit | |
| June 30, 2021 | Interest Expenses | $ 11,519 | ||
| Discount on issuance of Bond | $ 1,019 | |||
| Cash | $ 10,500 | |||
| (Record the payment of interest expenses ) | ||||
| ANSWER = 3) | ||||
| Journal Entries | ||||
| Date | Account Title and explanation | Debit | Credit | |
| Dec 31, 2021 | Interest Expenses | $ 11,519 | ||
| Discount on issuance of Bond | $ 1,019 | |||
| Cash | $ 10,500 | |||
| (Record the payment of interest expenses ) | ||||
ekkarill92 answered 2 years agoRelated Solutions
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interest payable semiannually on June 30 and December 31 each
year.
Assuming the market interest rate on the issue date is 10%, the
bonds will issue at $429,678.
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Date
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Credit
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Interest Expense
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6/30/18
12/31/18
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