Question

Whitmore Company issued $404,500 of 5-year, 5% bonds at 98 on January 1, 2017. The bonds pay interest annually.

Prepare the journal entry to record the issuance of the bond

Account Titles and Explanation

Debit

Credit

Compute the total cost of borrowing for these bonds.

Total cost of borrowing

Prepare the journal entry to record the issuance of the bonds, assuming the bonds were issued at 104.

Account Titles and Explanation

Debit

Credit Compute the total cost of borrowing for these bonds, assuming the bonds were issued at 104. Total cost of borrowing

Answer 1

Jan-1-17	Cash	396410		=404500*0.98
	Discount on Bonds payable	8090
	Bonds payable		404500
	Total interest expense	101125		=404500*5%*5
	Amount borrowed	-396410
	Face value	404500
	Total cost of borrowing	109215
2
Jan-1-17	Cash	420680		=404500*1.04
	Bonds payable		404500
	Premium on Bonds payable		16180
	Total interest expense	101125
	Amount borrowed	-420680
	Face value	404500
	Total cost of borrowing	84945