On January 1, 2014, Park Corporation sold a $615,000, 4 percent bond issue (6 pe

Question

On January 1, 2014, Park Corporation sold a $615,000, 4 percent bond issue (6 percent market rate). The bonds were dated January 1, 2014, pay interest each June 30 and December 31, and mature in four years. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.)

-Prepare the journal entry to record the issuance of the bonds.

-Prepare the journal entry to record the interest payment on June 30, 2014. Use effective-interest amortization.

-Show how the bond interest expense and the bonds payable should be reported on the June 30, 2014, income statement and balance sheet.

Explanation / Answer

% × $615,000 * Present value of an ordinary annuity of $1: n = 8, i = 3% (PVA of $1) = 12,300*7.32548

= $90,103.40(interest)

** Present value of $1: n = 8, i = 3% (PV of $1)

615,000*0.78941= $ 485,487.15(Principal)

PV of bond = 90103.40+485487.15 = $575,590.55

Prepare the journal entry to record the issuance of the bonds

Dr Cash $575,590.55
Dr Discount on bonds 39,409.45
Cr Bonds payable 615,000

Prepare the journal entry to record the interest payment on June 30, 2014. Use effective-interest amortization

Dr Interest expense17,267.71
Cr Discount on bonds payable 4,967.71
Cr Cash 12,3000

*(575,590.45*3%)

**(615,000*2%)

Show how the bond interest expense and the bonds payable should be reported on the June 30, 2014, income statement and balance sheet

Income Statement Int expense $17,267.71 Balance sheet: Long-term liabilities Bonds payable $615,000 Minus: unarmortized discount $34,441.74 Carrying value of bond $580,558.26

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