Question

On January 1 of this year, Victor Corporation sold bonds with a face value of $1,440,000 and a coupon rate of 10 percent. The bonds mature in four years and pay interest semiannually every June 30 and December 31. Victor uses the straight-line 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 Victor report on its June 30 balance sheet?

Answer 1

Fair value of bond as per 8.5 % rate = 1,511,968.85 $

(1) Journal Entry at the time of issue:-

Cash a/c r. 1,440,000 $

Premium on bonds a/c dr. 71,968.85 $

To, bonds payable a/c 1,511,968.85 $

Journal entry at the time of interest payment:-

(a) Interest expense a/c Dr. 64,258.67

To, Interest payable a/c 64,258.67 $

(b) Interest payable a/c Dr. 64,258.67 $

Bond payable a/c Dr. 7,741.33 $

To, cash a/c 72,000 $

(2) Bond amounbt payable on balance sheet on June 30 - 1,504,227.52 $