A company issues 7%, 9-year bonds with a face amount of $70,000 for $74,813 on January...

A company issues 7%, 9-year bonds with a face amount of $70,000 for $74,813 on January 1, 2021. The market interest rate for bonds of similar risk and maturity is 6%. Interest is paid semiannually on June 30 and December 31.

Required:
1. & 2. Record the bond issue and first interest payment on June 30, 2021. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations. Round your answers to the nearest dollar amount.)

Solutions

Expert Solution

Par value of bonds = $70,000

Cash receipts from issue of bonds = $74,813

Premium on bonds payable = Cash receipts from issue of bonds - Par value of bonds

= 74,813-70,000

= $4,813

Date	General Journal	Debit	Credit
January 1, 2021	Cash	$74,813
	Bonds payable		$70,000
	Premium on bonds payable		$4,813
	( To record bond issue)
June 30, 2021	Interest expense	$2,244
	Premium on bonds payable	$206
	Cash		$2,450
	( To record semi-annual interest expense)

Semi annual interest payment = Par value of bonds x Interest rate x 6/12

= 70,000 x 7% x 6/12

= $2,450

Interest expense on June 30,2021 = Carrying value of bonds x Market interest rate x 6/12

= 74,813 x 6% x 6/12

= $2,244

Premium on bonds payable written off on June 30, 2021 = Semi annual interest payment - Interest expense on June 30,2021

= 2,450-2,244

= $206

Kindly comment if you need further assistance.

Thanks‼!

ekkarill92 answered 1 year ago

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