Question

Ayayai Corporation sold $2,100,000, 6%, 5-year bonds on January 1, 2022. The bonds were dated January 1, 2022, and pay interest on January 1. Ayayai Corporation uses the straight-line method to amortize bond premium or discount. Prepare all the necessary journal entries to record the issuance of the bonds and bond interest expense for 2022, assuming that the bonds sold at 102. Prepare journal entries to record the issuance of the bonds and bond interest expense for 2022, assuming that the bonds sold at 95. (1) Show the balance sheet presentation for the bond issue at December 31, 2022, using the 102 selling price. (2) Show the balance sheet presentation for the bond issue at December 31, 2022, using the 95 selling price.

Answer 1

a.)	Sold at 102
	Date	Account Titles	Debit $	Credit $
	January 1,2022	Cash ( 2,100,000 x 102) /100	2,142,000
		Premium on Bond		42,000
		Bond Payable		2,100,000
	December 31,2022	Interest Expense	117,600
		Premium on Bond ( 42,000 / 5 )	8,400
		Interest Payable ( 2,100,000 x 6% )		126,000
	Balance Sheet	As at December 31,2022
	Non-Current Liabilities		Amount $
	Bond Payable at Face Value	2,100,000
	Add: Premium on Bond	33,600	2,133,600
	( 42,000 - 8,400 )
	Current liabilities
	Interest Payable		126,000
b.)	Sold at 95
	Date	Account Titles	Debit $	Credit $
	January 1,2022	Cash ( 2,100,000 x 95) /100	1,995,000
		Discount on Bond	105,000
		Bond Payable		2,100,000
	December 31,2022	Interest Expense	147,000
		Discount on Bond (105,000 / 5 )		21,000
		Interest Payable ( 2,100,000 x 6% )		126,000
	Balance Sheet	As at December 31,2022
	Non-Current Liabilities		Amount $
	Bond Payable at Face Value	2,100,000
	Less: Discount on Bond	84,000	2,016,000
	(105,000 - 21,000 )
	Current liabilities
	Interest Payable		126,000