Question

Chapter 10 Question 3:

Legacy issues $580,000 of 8.0%, four-year bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31. They are issued at $507,959 and their market rate is 12% at the issue date.

Required:

1. Prepare the January 1, 2017, journal entry to record the bonds' issuance.
2. Complete the below table to calculate the total bond interest expense to be recognized over the bonds' life.
3. Prepare an effective interest amortization table for the bonds' first two years.
4. Prepare the journal entries to record the first two interest payments.

Prepare the January 1, 2017, journal entry to record the bonds' issuance.

Journal entry worksheet

Record the issue of bonds with a par value of $580,000 cash on January 1, 2017 at an issue price of $507,959.

Note: Enter debits before credits.

Date General Journal Debit Credit Jan 01, 2017 Complete the below table to calculate the total bond interest expense to be recognized over the bonds' life. Total bond interest expense over life of bonds: Amount repaid: payments of Par value at maturity Total repaid 0 Less amount borrowed Total bond interest expense $0 Prepare an effective interest amortization table for the bonds' first two years. Semiannual Interest Period-End Cash Interest Paid Bond Interest Expense Discount Amortization Unamortized Discount Carrying Value 01/01/2017 06/30/2017 12/31/2017 06/30/2018 12/31/2018 Prepare the journal entries to record the first two interest payments. Journal entry worksheet Record the first interest payment on June 30, 2017. Note: Enter debits before credits. Date General Journal Debit Credit Jun 30, 2017 Record the second interest payment on December 31, 2017. Note: Enter debits before credits. Date General Journal Debit Credit Dec 31, 2017

Answer 1

1
Jan. 1, 2017	Cash	507959
	Discount on bonds payable	72041
	Bonds payable		580000
2
Total bond interest expense over life of bonds:
Amount repaid:
8 payments of $23200	185600
Par value at maturity	580000
Total repaid	765600
Less amount borrowed	507959
Total bond interest expense	257641
3
Semiannual Interest Period­End	Cash Interest Paid	Bond Interest Expense	Discount Amortization	Unamortized Discount	Carrying Value
01/01/2017				72041	507959
06/30/2017	23200	30478	7278	64763	515237
12/31/2017	23200	30914	7714	57049	522951
06/30/2018	23200	31377	8177	48872	531128
12/31/2018	23200	31868	8668	40204	539796
4
June 30,2017	Bond interest expense	30478
	Discount on bonds payable		7278
	Cash		23200
Dec 31,2017	Bond interest expense	30914
	Discount on bonds payable		7714
	Cash		23200