Problem 10-8A Pronghorn Corporation sold $2,060,000, 796, 5-year bonds on Januar

Question

Problem 10-8A Pronghorn Corporation sold $2,060,000, 796, 5-year bonds on January 1, 2017. The bonds were dated January 1, 2017, and pay interest on January 1. Pronghorn Corporation uses the straight-line method to amortize bond premium or discount. Prepare all the necessary journal entries to record the issuance of the bonds and bond interest expense for 2017, assuming that the bonds sold at 104. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Jan. 1 Dec. 31

Explanation / Answer

Solution:

Part 1 – Journal Entries for Bonds sold at 104

Issue Price of the bonds = 104% of Par Value $2,060,000 = $2,142,400

Date

Accounts

Debit

Credit

Jan.1

Cash

$2,142,400

Bonds Payable

$2,060,000

Premium on Bonds Payable

$82,400

(Bonds are issued at premium recorded

Dec.31

Interest Expense

$127,720

Premium on Bonds Payable (82400/5)

$16,480

Interest Payable (Par value 2060,000*7%)

$144,200

(Interest Expenses for the year recorded)

Part 2 – Journal Entries for Bonds Sold at 99

Issue Price of the bonds = 99% of Par Value 2,060,000 = $2,039,400

Date

Accounts

Debit

Credit

Jan.1

Cash

$2,039,400

Discount on Bonds Payable

$20,600

Bonds Payable

$2,060,000

(Bonds are issued at discount recorded)

Dec.31

Interest Expense

$148,320

Discount on Bonds Payable (20600 / 5)

$4,120

Interest Payable (Par value 2060,000*7%)

$144,200

(Interest Expenses for the year recorded)

Part 3 – Balance Sheet Presentation using 104 selling price

Balance Sheet (Partial)

as at Dec.31, 2017

Current Liabilities

Interest Payable

144200

Long Term Liabilities:

Bonds Payable

$2,060,000

Add:

Premium on Bonds Payable (Unamortized Portion)

$82,400

$2,142,400

Part 4 --- Balance Sheet presentation using 99 selling price

Balance Sheet (Partial)

as at Dec.31, 2017

Current Liabilities

Interest Payable

144200

Long Term Liabilities:

Bonds Payable

$2,060,000

Less:

Discount on Bonds Payable (Unamortized Portion)

-$20,600

$2,039,400

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Date

Accounts

Debit

Credit

Jan.1

Cash

$2,142,400

Bonds Payable

$2,060,000

Premium on Bonds Payable

$82,400

(Bonds are issued at premium recorded

Dec.31

Interest Expense

$127,720

Premium on Bonds Payable (82400/5)

$16,480

Interest Payable (Par value 2060,000*7%)

$144,200

(Interest Expenses for the year recorded)

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