Question

Park Corporation is planning to issue bonds with a face value of $2,008,000 and a coupon rate of 10 percent. The bonds mature in 5 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Park uses the effective-interest amortization method and does not use a premium account. Assume an annual market rate of interest of 8.5 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answers to whole dollars.)

Required:

1.&2. Prepare the journal entry to record the issuance of the bonds and the interest payment on June 30 of this year.

3. What bonds payable amount will Park report on its June 30 balance sheet?

Answer 1

Solution 1 & 2:

Computation of bond price
Table values are based on:
n=	10
i=	4.25%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.6595400	$2,008,000.00	$1,324,356
Interest (Annuity)	8.0108900	$100,400.00	$804,293
Price of bonds			$2,128,650

Journal Entries - Park Corporation
Date	Particulars	Debit	Credit
1-Jan	Cash Dr	$2,128,650.00
	To Bond Payable		$2,128,650.00
	(To record issue of bond at premium)
30-Jun	Interest expense Dr ($2,128,650*8.5%*6/12)	$90,468.00
	Bond Payable Dr	$9,932.00
	To Cash		$100,400.00
	(To record interest expense and discount amortization)

Solution 3:

Bonds payable amount will Park report on its June 30 balance sheet = $2,128,650 - $9,932 = $2,118,718