Question

Serotta Corporation is planning to issue bonds with a face value of $340,000 and a coupon rate of 8 percent. The bonds mature in two years and pay interest quarterly every March 31, June 30, September 30, and December 31. All of the bonds were sold on January 1 of this year. Serotta uses the effective-interest amortization method and also uses a premium account. Assume an annual market rate of interest of 12 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1)

1. Provide the journal entry to record the issuance of the bonds January 1

2. Provide the journal entry to record the interest payment on March 31, June 30, September 30, and December 31 of this year.

3. What bonds payable amount will Serotta report on this year's December 31 balance sheet?

Answer 1

Price of the bond = c × F × (1 − (1 + r)-t)/r+F(1 + r)t
C=Interest Rate
Price of Bond= Present value of Interest payments+Present value of the bond
Price of Bond
Discount factor upto 3 decimal as table not provided
6800*(1-(1.03)^-8)/.08+340000/(1.03)^8
(6800*(1-.78941)/.03)+340000*.78941			316133
Interest semiannual 340000*2%		6800
Period=4*2=8
Date	Interest Payment @2%	Bond Interest expenses at 3%*G	Discount Amortization of Bond C-B	Unamortized discount	Credit balance in the Bond payable	Carrying value of Bond F-E
	Credit cash	Debit Interest Expense	Bond Discount
1/1 year1				23867	340000	316133
3/31/year 1	6800	9484	2684	21183	340000	318817
30-Jun-18	6800	9565	2765	18418	340000	321582
30-Sep-18	6800	9647	2847	15571	340000	324429
30-Dec-18	6800	9733	2933	12638	340000	327362
			in $
Date	Accounts Title	Dr	Cr
1-Jan	Cash	316133
	discount on bonds payable	$23,867
	Bonds payable		$340,000
ans 2
31-Mar	Interest Expenses	9484
	discount on bonds payable		2684
	Cash		6800
30-Jun	Interest Expenses	9565
	discount on bonds payable		2765
	Cash		6800
30-Sep	Interest Expenses	9647
	discount on bonds payable		2847
	Cash		6800
31-Dec	Interest Expenses	9733
	discount on bonds payable		2933
	Cash		6800
ans 3	Bond payable amount on Dec 31		327362
If any doubt please comemnt.