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In: Accounting

Mamas & Papas, Inc. issues 7%, 10-year bonds with a face amount of $80,000 for $74,564...

Mamas & Papas, Inc. issues 7%, 10-year bonds with a face amount of $80,000 for $74,564 on January 1, 2020. The market interest rate for bonds of similar risk and maturity is 8%. Interest is paid semiannually on June 30 and December 31.

1. Record the bond issue in the journal.

2. Record in the journal the first interest payment on June 30, 2020.

Expert Solution

1. Record the bond issue in journal -

2. Record in the journal the first interest payment on June 30, 2020 -

Under Straight Line -

assume discount on bond issued has amortized on straightline method .

under straight line method bond amortized = Discount on issue of bond/(10*2)

= 5436/20

= 271.8

Under effective interest method bond amortized = carryin value of bond at 1st jan 2020 *4% - Cash interest

= 74564*4% - 2800

= 2982.56 - 2800

= 182.56

Please check with your answer and let me know.

ekkarill92 answered 4 months ago

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