Question

On January 1, 2014, Frog Corporation sold a $2,000,000, 10 percent bond issue (8.5 percent market rate). The bonds were dated January 1, 2014, pay interest each June 30 and December 31, and mature in 10 years. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.)

      

Required:
1.	Prepare the journal entry to record the issuance of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

   
     

2.	Prepare the journal entry to record the interest payment on June 30, 2014. Use effective-interest amortization. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

  
     

3.	Show how the bonds payable should be reported on the June 30, 2014, financial statements.

      

     

Answer 1

Solution 1:

Computation of bond price
Table values are based on:
n=	20
i=	4.25%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.43499	$2,000,000	$869,979
Interest (Annuity)	13.29437	$100,000	$1,329,437
Price of bonds			$2,199,415

Journal Entries - Frog Corporation
Date	Particulars	Debit	Credit
1-Jan-14	Cash Dr	$2,199,415.00
	To Bond Payable		$2,000,000.00
	To Premium on Bond Payable		$199,415.00
	(To record issue of bond)

Solution 2:

Journal Entries - Frog Corporation
Date	Particulars	Debit	Credit
30-Jun-14	Interest Expense Dr ($2,199,415 * $4.25%)	$93,475.00
	Premium on bond payable Dr	$6,525.00
	To Cash		$100,000.00
	(To record semiannual interst payment and premium amortization)

Solution 3:

Frog Corporation
Balance Sheet (Partial)
As of June 30, 2014
Particulars		Amount
Long term liabilities:
Bond Payable	$2,000,000.00
Premium on bond payable ($199,415 - $6,525)	$192,890.00
Net Bond Liabiliity		$2,192,890.00