Effective-Interest Amortization Practice 12-13 company issued 10-year bonds with

Question

Effective-Interest Amortization Practice 12-13 company issued 10-year bonds with a face value of $200,000. The bonds carry a coupon rate of 109%, and interest is paid semiannually. On the issue date, the market interest rate for bonds issued by companies with similar risk 177,060. Make the journal entries needed on the books of the issuer to record the first two was 12% compounded semiannually. The issuance price of the bonds was interest pay ments on June 30 and December 31. Use effective-interest amortization of the bond discount.

Explanation / Answer

Par value of Bonds 200000 Issue price 177060 Discount on issue 22940 Stated rate of interest 10% Market rate of interest 12% Semi annual interest paid 10000 (200,000*10%*6/12) Amort chart Period Interest Interest Discount Unamortized Book value Paid Expense Amortized Discount at the end 01.01. Yr1 22940 177060 30.06 Yr1 10000 10624 624 22316 177684 31.12 Yr1 10000 10661 661 21655 178345 Journal entries: Date Accounts title and explanations Debit $ Credit $ 30.06. Yr1 Interest expense Account Dr. 10624     Cash account 10000     Discount on bonds payable Account 624 31.12. Yr1 Interest expense Account Dr. 10661     Cash account 10000     Discount on bonds payable Account 661

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