Question

Rick's Pawn Shop issued 11% bonds, dated January 1, with a face amount of $400,000 on...

Rick's Pawn Shop issued 11% bonds, dated January 1, with a face amount of $400,000 on January 1, 2019. The bonds sold for $370,000. For bonds of similar risk and maturity the market yield was 12%. Interest is paid semiannually on June 30 and December 31. Rick's determines interest at the effective rate and elected the option to report these bonds at their fair value. On December 31, 2019, the fair value of the bonds was $365,000, with $2,000 of the change due to a change in general interest rates.

Need all the entries related to this bond from issuance through 12/31/2019.

Homework Answers

Answer #1
Date General Journal Debit Credit
Jan 1 2019 Cash $370000
Discount on Issue of Bond $30000
Bonds Payable $400000
June 30 2019 Interest expense (370000 * 0.06) $22200
Cash $22000
Discount on Issue of Bonds $200
Dec 31 2019 Interest Expense (370200 * 0.06) $22212
Cash $22000
Discount on Issue of bonds $212
Dec 31 2019 Bonds Payable $5412
Fair Value Adjustment - NI (Gain $2000) $2000
Fair Value Adjustment - OCI (370412 -2000 - 365000) $3412
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