Question

On 1/1/20, Your Company issued $250,000 of 6% bonds, dated 1/1/20. The bonds pay interest annually on December 31^st. The yield is 8%. They mature in three years on 12/31/22. The bonds were issued for $237,115

Note: Be sure to show the date of each journal entry. The ‘right’ journal entry on the ‘wrong’ date is wrong.

1. Prepare an amortization table for all three years.
2. Prepare the journal entry for 1/1/20
3. Prepare the journal entry for 12/31/20

Answer 1

1) Amortization Table

Maturity (Par) Value	$250,000.00
No. of Years	3
Coupon Rate	6%
Market Rate	8%
Number of Payment per Year	1
Issue Date	1-1-20
Maturity Date	12-31-22
Bond Selling Price	$237,115.00

Period	Cash Paid	Interest Expense	Amortization	Carry Value of Bond
1-1-20				$237,115.00
12-31-20	$15,000.00	$18,969.20	$3,969.20	$241,084.20
12-31-21	$15,000.00	$19,286.74	$4,286.74	$245,370.94
12-31-22	$15,000.00	$19,629.67	$4,629.67	$250,000.61
Total	$45,000.00	$57,885.61	$12,885.61

2) Journal Entry for 1/1/20

Date	Account Name	Debit	Credit
1-1-20	Cash/ Bank	$237,115.00
	Discount on Bonds Payable	$12,885.61
	6% Bonds Payable		$250,000.61

3) Journal Entry for 12/31/20

Date	Account Name	Debit	Credit
12-31-22	Interest Expense	$18,969.20
	Discount on Bonds Payable		$3,969.20
	Cash/ Bank		$15,000.00