Question

Park Corporation is planning to issue bonds with a face value of $3,400,000 and a coupon rate of 7 percent. The bonds mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Park uses the effective-interest amortization method and also uses a premium account. Assume an annual market rate of interest of 6.0 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.)

Required:

1. Prepare the journal entry to record the issuance of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2. Prepare the journal entry to record 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. Round your final answer to whole dollars.)

3. How will Park present its bonds on its June 30 balance sheet? (Round your final answer to whole dollars.)

Answer 1

Solution 1:

Computation of bond price
Table values are based on:
n=	20
i=	3.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.55368	$3,400,000.00	$1,882,512
Interest (Annuity)	14.87747	$119,000.00	$1,770,419
Price of bonds			$3,652,931

Journal Entries - Park Corporation
Date	Particulars	Debit	Credit
1-Jan	Cash Dr	$3,652,931.00
	To Bond Payable		$3,400,000.00
	To Premium on Bond Payable		$252,931.00
	(To record issue of bond at premium)

Solution 2:

Journal Entries - Park Corporation
Date	Particulars	Debit	Credit
30-Jun	Interest expense Dr ($3,652,931*6%*6/12)	$109,588.00
	Premium on bond payable Dr	$9,412.00
	To Cash		$119,000.00
	(To record interest expense and discount amortization)

Solution 3:

Park Corporation
Balance Sheet (Partial)
As of June 30
Particulars		Amount
Long term liabilities:
Bond Payable	$3,400,000.00
Add: Premium on bond payable	$243,519.00
Net Bond Liability		$3,643,519.00