5) Boulware Company issues 8%, 5-year bonds, on December 31, 2008, with a par va
ID: 2345486 • Letter: 5
Question
5) Boulware Company issues 8%, 5-year bonds, on December 31, 2008, with a par value of $100,000 and semiannual interest payments.Semiannual Period-End Unamortized Discount Carrying value
(0) 12/31/2008 $7,723 $92,277
(1) 6/30/2009 6,951 93,049
(2) 12/31/2009 6,179 93,821
Required:
(a) Use the above straight-line bond amortization table and prepare journal entries to record the issuance of bonds on December 31, 2008. (Omit the "$" sign in your response.)
Date General Journal Debit Credit
Dec 31
(b) Use the above straight-line bond amortization table and prepare journal entries to record the first interest payment on June 30, 2009. (Omit the "$" sign in your response.)
Date General Journal Debit Credit
Jun 30
(c) Use the above straight-line bond amortization table and prepare journal entries to record the second interest payment on December 31, 2009. (Omit the "$" sign in your response.)
Date General Journal Debit Credit
Dec 31
Explanation / Answer
As Carrying Value of Bond is increasing every period, Bond is issued at a Discount. Cash Rxd = $92277 & Dicount on Bond = $7723 So Journal entry will be : 31 Dec 2008 Cash Dr $92,277 Discount on Bonds Payable Dr $7,723 Bonds Payable Cr $100,000 Issue bonds at a discount (b) The total interest expense can be calculated using the bond-related payments and receipts as shown: Repayments Principal $100,000 Interest (8%*100,000*6/12 times 10 semiannual periods) $40,000 Total cash payments to investors $140,000 Less: Cash receipts from investors ($92,277) So Total interest expense $47,723 The straight-line method of allocating the discount to interest expense spreads the $7723 of discount evenly over the 10 semiannual interest payments made for the bonds. 30 Jun 2009 Interest Expense Dr $4,772 Discount on Bonds Payable ($7,723/10 period) Cr $772 Cash ($100,000*8% *6/12) Cr $4,000 Pay semiannual interest using straight-line amortization Check : Begining disc - Disc amortied = 7723-772 = 6951 : Unamortized disc. THis is what is given in data on 30 Jun2009 (c) 31 Dec 2009 Interest Expense Dr $4,772 Discount on Bonds Payable ($7,723/10 period) Cr $772 Cash ($100,000*8% *6/12) Cr $4,000 Pay semiannual interest using straight-line amortization Check : Begining disc on 30 Jun 2009 - Disc amortied = 6951-772 = 6179 : Unamortized disc. THis is what is given in data on 31 Dec 2009
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