Question

Claire Corporation is planning to issue bonds with a face value of $220,000 and a coupon rate of 12 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. Claire uses the effective-interest amortization method and also uses a discount account. Assume an annual market rate of interest of 16 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.)  

Required:

1. Provide 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. Round your final answers to nearest whole dollar amount.)

Journey Entry

Record the issuance of the bonds on 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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answers to nearest whole dollar amount.)

Journal entry worksheet

• Record the interest payment on March 31.
• Record the interest payment on June 30
• Record the interest payment on September 30.
• Record the interest payment on December 31.

3. What is the carrying value of the bonds Claire will report on this year's December 31 balance sheet? (Round your final answers to nearest whole dollar amount.)

Bonds Payable

Answer 1

	Price of the Bond Payable
	Face Value	$220,000	0.73069	$160,751.80
			(PV of $1 4%, 8)
	Interest	$6,600	6.73275	$44,436.15
			(PVA of $1 4%, 8)
	Issue Price of the Bond			$205,188
1
Date	Account Titles and Explanation	Debit	Credit
Jan 1	Cash	$205,188
	Discount on Bonds Payable	$14,812
	Bonds Payable		$220,000
2
Date	Account Titles and Explanation	Debit	Credit
March 31	Interest Expense	$8,208
	Discount on Bonds Payable		$1,608
	Cash		$6,600
June 30	Interest Expense	$8,272
	Discount on Bonds Payable		$1,672
	Cash		$6,600
Sep 30	Interest Expense	$8,339
	Discount on Bonds Payable		$1,739
	Cash		$6,600
Dec 31	Interest Expense	$8,408
	Discount on Bonds Payable		$1,808
	Cash		$6,600
3	The carrying value of the bonds	$212,014