Question

Accounting

On June 1, 2020, Shebandowan Investors Inc. issued a $4,800,000, 12%, three-year bond. Interest is to be paid semiannually beginning December 1, 2020. Assume that the market rate of interest is 13%. Use TABLE 14A.1 and TABLE 14A.2. (Use appropriate factor(s) from the tables provided.) Required: Part 1 Record the following entries: (Do not round intermediate calculations. Round the final answers to the nearest whole dollar.)

a. Issuance of the bonds on June 1, 2020

b. Payment of interest on December 1, 2020

c. Adjusting entry to accrue bond interest and discount amortization on January 31, 2021

d. Payment of interest on June 1, 2021 Assume Shebandowan Investors Inc. has a January 31 year-end.

Part 2

Show how the bonds will appear on the balance sheet under non-current liabilities at January 31, 2022. (Do not round intermediate calculations. Round the final answers to the nearest whole dollar.)

Answer 1

Computation of Issuance Price of Bond
PV of Semin Annual interest Payment(4800000*6%*4.84101)	$1,394,211
PV of Bond Payable (4800000*0.68533)	$3,289,584
Issuance Price of Bond	$4,683,795
or $4683800 Rounded Off

Part-2: Journal Entry
Date	Account Tittle	Debit	Credit
01-June-2020	Cash	$4,683,800.00
	Discount On Bond	$116,200.00
	Bond Payable		$4,800,000.00
	TO Record issuance of Bond
01-Dec -2020	Interest Expense (4683800*6.5%)	$304,447.00
	Amortisation of Discount		$16,447.00
	Cash   (4800000*6%)		$288,000.00
	TO Record Interet Expense
31-Jan-2021	Interest Expense (4683800+16477)*6.5%*2/6	$101,839.34
	Amortisation of Discount		$5,839.34
	Interest Paybale (4800000*6%*2/6)		$96,000.00
	TO Record Interet Expense
01-Jun-2021	Interest Expense (4683800+16477+5839.34)*6.5%*4/6	$203,931.71
	Interest Payable	$96,000.00
	Amortisation of Discount		$11,931.71
	Cash (4800000*6%*4/6)		$288,000.00

Balance sheet Partial at the end of year 31 Jan 2022
Non Current Laibility
Bond Payable	$4,890,915.55
(4683800+164447+5839.34+11931.71+24897.50)