Question

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On January 1, when the market interest rate was 8 percent, Seton Corporation completed a $250,000, 7 percent bond issue for $233,227. The bonds pay interest each December 31 and mature in 10 years. Assume Seton Corporation uses the effective-interest method to amortize the bond discount.

rev: 04_29_2019_QC_CS-166541

Required:

1. 1. & 2. Prepare the required journal entries to record the bond issuance and the first interest payment on December 31. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Round your answers to the nearest whole dollar.)

   1. Record the issuance of bonds for $233,227 with a face value of $250,000.

   2. Record the interest payment on December 31.

Answer 1

Interest Amortization :-

Date	Cash Paid (A)	Interest Expenses (B)	Change in Carrying Value (B-A)	Carrying Value
Jan. 1	0	0	0	$233227
Dec. 31 Year 1	($250000*7%) =$17500	($233227*8%) =$18658	$1158	($233227+$1158) =$234385
Dec. 31 Year 2	($250000*7%) =$17500	($234385*8%) =$18751	$1251	($234385+$1251) =$235636
Dec. 31 Year 3	($250000*7%) =$17500	($235636*8%) =$18851	$1351	($235636+$1351) =$236987
Dec. 31 Year 4	($250000*7%) =$17500	($236987*8%) =$18959	$1459	($236987+$1459) =$238446
Dec. 31 Year 5	($250000*7%) =$17500	($238446*8%) =$19076	$1576	($238446+$1576) =$240022
Dec. 31 Year 6	($250000*7%) =$17500	($240022*8%) =$19202	$1702	($240022+$1702) =$241724
Dec. 31 Year 7	($250000*7%) =$17500	($241724*8%) =$19338	$1838	($241724+$1838) =$243562
Dec. 31 Year 8	($250000*7%) =$17500	($243562*8%) =$19485	$1985	($243562+$1985) =$245547
Dec. 31 Year 9	($250000*7%) =$17500	($245547*8%) =$19644	$2144	($245547+$2144) =$247691
Dec. 31 Year 10	($250000*7%) =$17500	($247691*8%) =$19809	$2309	($247691+$2309) =$250000

Journal Entries :-

Date	Particulars	Debit($)	Credit($)
Jan. 1	Cash A/c	233227
	Discount on Bonds Payable A/c	16773
	Bonds Payable A/c		250000
	(Being record Issue of bonds on discount)
Dec. 31	Interest Expenses A/c	18658
	Discount on Bonds Payable A/c		1158
	Cash A/c		17500
	(Being record first payment of interest)