Question

3. XYZ issues a 15-year, $20,000,000 bond on September 1, 2019 with a stated interest rate of 3.4%, payable semiannually. Market interest rates on September 1, 2019 were 3.8%. Prepare the journal entry to record the transaction on September 1, 2019.

4. Prepare the journal entries to record interest expense and other accounts for XYZ’s bond for the first 2 interest payments (ignore year-end accruals)

Answer 1

Req 3.
Semi annual cash interest = 20000,000 *3.40%*6/12 = 340,000
n = 30
I = 1.90%
Cash flows		Amount	PVF	Present value
Semi annual cash interest	340000	22.7075	7720550
Maturity value		2,00,00,000	0.5686	11372000
Price of bonds				19092550
Journal entries
Date	Accounts title and explanations		Debit $	Credit $
a.	Cash account			19092550
	Discount on bonds payable		907450
	Bonds payable				2,00,00,000
	(for issuance of bonds
Amort Chart
Date	Cash Int.	Int.exp	Discount	Unamortized	Carrying
			amortized	discount	value
01.09.19				907450	1,90,92,550
01.03.20	340000	362759	22759	884691	1,91,15,309
01.09.20	340000	363191	23191	861500	1,91,38,500
Journal entries
Date	Accounts title and explanations		Debit $	Credit $
01.03.20	Interest expense			362759
	Discount on bonds payable			22759
	Cash account				340000
	(for interest paid)
01.09.20	Interest expense			363191
	Discount on bonds payable			23191
	Cash account				340000
	(for interest paid)