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E10-23 (Algo) (Chapter Supplement) Recording and Reporting a Bond Issued at a Premium (Straight-Line Amortization without...

E10-23 (Algo) (Chapter Supplement) Recording and Reporting a Bond Issued at a Premium (Straight-Line Amortization without a Premium Account) LO 10-5

On January 1 of this year, Victor Corporation sold bonds with a face value of $1,420,000 and a coupon rate of 8 percent. The bonds mature in four years and pay interest semiannually every June 30 and December 31. Victor uses the straight-line amortization method and does not use a premium account. Assume an annual market rate of interest of 6 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answers to whole dollars.)

Required:

1.& 2. Prepare the journal entry to record the issuance of the bonds and the interest payment on June 30 of this year.

3. What bonds payable amount will Victor report on its June 30 balance sheet?

Prepare the journal entry to record the issuance of the bonds and the interest payment on June 30 of this year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Journal entry worksheet

  • Record the issuance of the bonds.

Note: Enter debits before credits.

Date General Journal Debit Credit
January 01
  • Record the interest payment on June 30, using straight-line amortization.

Note: Enter debits before credits.

Date General Journal Debit Credit
June 30

Solutions

Expert Solution

Price of the bonds=
Present value oF interest payments+Present value of face value
(56000*PVA $1 (3%,8))+(1420000*PV of $1 (3%.8))
(56800*7.01969)+(1420000*.78941) 1519681
rate=6%/2 3% semi annualy
n=4*2 8 periods
Interest payment=1420000*8%*1/2 56800
Premium on Bonds payable
1514065-1420000 99681
Amortize in 8 periods
per period amortization 94065/8 12460
ans 1
Date Accounts Title DR CR
Jan-01 Cash 1519681
Premium on Bonds payable 99681
Bonds payable 1420000
(being bond issued at premiu =m recorded)
Jun-30 Interest expenses (56800-12460) 44340
Premium on Bonds payable 12460
Cash 56800
(being interest paid recorded)
ans 3 Balance Sheet
Long term liabilities
Bonds payable 1420000
Add: Premium on Bonds payable (99681-12460) 87221 1507221
The difference in answer can be due to discount factor taken upto 3 deimal or decimal
As table is not mentioned so took upto 5 decimal

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