Question

On 1/1/19 Farquad, Inc. issued a 10-year bond with a par value of $500,000 and an annual stated rate of 6%. Interest is paid semi-annually, and the market rate (yield) is 8%.

Required:  What journal entry should be recorded on 1/1/19 for the issuance of the bond?

Remember to include financial statement effects in parentheses. All journal entry lines may not be necessary.

Date	Account	Debit	Credit
1/1/19

Answer 1

no of years = 10

no of comp[ounding periods (n) = 10 * 2

= 20

stated interest rate = 6%

market rate of interest = 8%

interest amount for semi annual period = Face Value * stated rate * ( 6/12)

= 500000*6%*(6/12)

= $ 15000

issue Price of the bond
total values based on
n =	20
I = 8%/2	4%
Cash Flow	Table Value	amount	Present Value                  ( table Value * Amount )
par Value                        PVF ( i= 4% , n= 20 )	0.45639	$500,000	228195
interest Annuity           PVA ( i= 4% , n= 20 )	13.59033	$15,000	203854.95
Present Value of Bond			432049.95

issue price of the bond = 432050 ( rounded to nearest dollar )

discount on bonds = Face Value - issue price

= 500000 - 432050

= $ 67950

Date	Accounts Name	Debit	Credit
	Bond Issue journal entry
1-Jan	Cash	432050
	Discount on bonds	67950
	Bonds Payable		500000

Balance sheet

BALANCESHEET (Partial)
Long terem liabilities
Bonds payable	500000
Less ; Discount on Bonds Payable	67950
Total Liabilities		432050

affect on finnancial statements

assets ( Cash ) increased by $ 432050 & liabilities were increased by $ 432050