Question

Sikes Corporation, whose annual accounting period ends on December 31, issued the following bonds:

Date of bonds: January 1, 2015

Maturity amount and date: $180,000 due in 10 years (December 31, 2024)

Interest: 10 percent per year payable each December 31

Date issued: January 1, 2015

Required:

1.

For each of the three independent cases that follow, provide the following amounts to be reported on the January 1, 2015, financial statements immediately after the bonds are issued. TIP: See Exhibit 10.5 for an illustration distinguishing Bonds Payable from their carrying value. (Negative amounts should be indicated with a minus sign.)

Answer 1

The following amounts to be reported on the January 1, 2015, financial statements immediately after the bonds are issued:-

Case a: If Bonds issued at $ 100

Bonds Payable $ 180,000

Case b: If Bonds issued at $ 96

                                    Bonds Payable                                     $ 180,000

                        Less:    Unamortized Discount on Bonds $7,200

                                                                                                ------------------

                                    Unpaid Bond Liabilities $ 172,800

                                                                                                --------------------

Case c: If Bonds issued at $ 102

                                    Bonds Payable                                     $ 180,000

                        Add:     Unamortized Discount on Bonds $ 3,600

                                                                                                ------------------

                                    Unpaid Bond Liabilities $ 183,600

                                                                                                --------------------