In: Accounting
On January 1, 2019, Ridge Company issued $10,000,000 face value bonds for 10 years at 12%. The bonds are issued at 96, and dated January 1. Interest is paid annually on January 1.
The end of Ridge’s fiscal year is December 31.
Required:
1. Prepare the necessary journal entries for the year 2019.
2. Show the balance sheet presentation on December 31, 2019.
3. Prepare the necessary journal entries for the year 2020.
4. What is the carrying value of the bonds at the end of the year 2024? What do you observe?
5. Prepare the necessary journal entries on the maturity date January 1, 2029.
1. Journal entries
Date | Account | Debit | Credit |
01-01-2019 | Cash | 9600000 | |
Discount on bonds payable | 400000 | ||
Bonds payable | 10000000 | ||
12-31-2019 | Interest expense | 1240000 | |
Discount on bonds payable | 40000* | ||
Cash | 1200000 |
* 400000 / 10 years (straight line amortization of discount)
2. Balance sheet (Partial)
Current liabilities | |
Interest payable | 1200000 |
Long-term liabilities | |
Bonds payable | 10000000 |
Less: Discount on bonds payable | -360000* |
9640000 |
* 400000 - 40000
3. Journal entries
Date | Account | Debit | Credit |
01-01-2020 | Interest payable | 1200000 | |
Cash | 1200000 | ||
12-31-2020 | Interest expense | 1240000 | |
Discount on bonds payable | 40000 | ||
Interest payable | 1200000 |
4. Carrying value at end of 2024 = 9840000
Year | Interest | Discount amortized | Carrying value |
2019 | 9600000 | ||
2019 | 1200000 | 40000 | 9640000 |
2020 | 1200000 | 40000 | 9680000 |
2021 | 1200000 | 40000 | 9720000 |
2022 | 1200000 | 40000 | 9760000 |
2023 | 1200000 | 40000 | 9800000 |
2024 | 1200000 | 40000 | 9840000 |
2025 | 1200000 | 40000 | 9880000 |
2026 | 1200000 | 40000 | 9920000 |
2027 | 1200000 | 40000 | 9960000 |
2028 | 1200000 | 40000 | 10000000 |
5. Journal entries
Date | Account | Debit | Credit |
01-01-2029 | Interest payable | 1200000 | |
Cash | 1200000 | ||
01-01-2029 | Bonds payable | 10000000 | |
Cash | 10000000 |