BONDS ISSUED AT A DISCOUNT Emerald, Inc., issued the following bonds at a discou

Question

BONDS ISSUED AT A DISCOUNT Emerald, Inc., issued the following bonds at a discount: REQUIRED 1. Prepare journal entries for: (a) Issuance of the bonds at a discount. (b) Interest payment and discount amortization on the bonds on September 30, 20-1. (c) Year-end adjustment on the bonds for 20-1. (d) Reversing entry for the beginning of 20-2. (e) Interest payments and discount amortization on the bonds for 20-2 (Mareh 31 and September 30). 2. Calculate the carrying value of the bonds on September 30,20-2.

Explanation / Answer

1. a

b.

Total discount on bonds = 5,00,000 - (500,000*97/100) = 15,000

Discount on bonds is calculated as follows: (Discount/ life of bond) * (6months / 12 months) = 15,000/ 20 * 6/12

c. Year end adjutsment:

(To accrue interest for the quarter Oct - Dec)

1 Jan 2002    Interest payable    10,000

                            Interest expense              10,000

(To reverse interest accrual)

Date Particulars Debit Credit 1-Apr-01 Cash account          485,000 Discount on bonds payable             15,000 Bonds Payable               500,000 To record bond issuance at Discount

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