Question 2 (15 marks) On December 31, 2016, Potter Corporation issued $2,000,000

Question

Question 2 (15 marks) On December 31, 2016, Potter Corporation issued $2,000,000, 6%, 5-year bonds for $1,837,750 The bonds were sold to yield an effective interest rate of 8%. Interest is paid annually on December 31. The company uses the effective-interest method of amortization. Instructions (a) Prepare the journal entries that Potter Corporation would make on December 31, 2016, and December 31, 2017, and December 31, 2018 related to the bond issue. (b) Prepare a bond discount amortization table for the first 2 interest periods. (c) Show the statement of financial position presentation of the bond liability at December 31, 2018. Question 3 (20 marks he equity section of Ankiel Corporation's statement of financial position at December 31, 201 pears below: Equity Share capital-ordinary, $10 par, 400,000 shares authorized, 250,000 $2,500,00

Explanation / Answer

(a) Dec 31, 2016 Interest expense 147020 Discount on bonds payable 27020 Cash 120000 Dec 31, 2017 Interest expense 149182 Discount on bonds payable 29182 Cash 120000 ` Dec 31, 2018 Interest expense 151516 Discount on bonds payable 31516 Cash 120000 (b) Date Beginning Book Balance Interest payment at Interest at 8% Discount amortization Ending Book Balance Balanace of Bond discount Dec 31, 2016 1837750 120000 147020 27020 1864770 135230 Dec 31, 2017 1864770 120000 149182 29182 1893952 106048 Dec 31, 2018 1893952 120000 151516 31516 1925468 74532 © STATEMENT OF FINANCIAL POSITION (DECEMBER 31, 2018) NON-CURRENT LIABILITIES: Bonds payable 2000000 Less: Discount on bonds payable 74532 Bonds payable (Net) 1925468

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