Question

Bonds Payable Problem

$60,000 Face Value Bonds.

5% Legal Rate

Three (3) years

Make ALL journal entries!!!

Annual Payments.

7% Market Rate.

Answer 1

Table values are based on:
Face Amount	$60,000
Interest Payment	$60,000*5% =$3,000
Market Interest rate per period	7.00%
Cash Flow	Table Value(PV of 7% for 3 period)	Amount	Present Value
PV of Interest	2.62432	$3,000	$7,873
PV of Principal	0.8163	$60,000	$48,978
PV of Bonds Payable(Issue Price)			$56,851
Amortization Table-As per effective interest method
Period	Interest Payment($60,000*5.0%)	Interest expenses(Closing carrying amount*7%)	Discount amorrtization	Unamortized Discount	Closing carrying amount
Col I	Col II	Col III	Col IV(Col III - Col II)	Col V	Col VI
Issue date				$                                 3,149	$                            56,851
1	$                                                                    3,000	$                                                                     3,980	$                                                   980	$                                 2,169	$                            57,831
2	$                                                                    3,000	$                                                                     4,048	$                                                1,048	$                                 1,121	$                            58,879
3	$                                                                    3,000	$                                                                     4,122	$                                                1,122	$                                      -0	$                            60,000
Parts	Accounts and explanation	Debit(in $)	Credit(in $)
Issue date	Cash	$                                                                   56,851
	Discount on Bond Payable	$                                                                     3,149
	Bond Payable		$                                              60,000
Year end 1	Interest expenses	$                                                                     3,980
	Cash		$                                                3,000
	Discount on Bond Payable		$                                                   980
Year end 2	Interest expenses	$                                                                     4,048
	Cash		$                                                3,000
	Discount on Bond Payable		$                                                1,048
Year end 3	Interest expenses	$                                                                     4,122
	Cash		$                                                3,000
	Discount on Bond Payable		$                                                1,122