Question

On January 1 of this year, Clearwater Corporation sold bonds with a face value of $761,000 and a coupon rate of 6 percent. The bonds mature in 10 years and pay interest annually every December 31. Clearwater uses the straight-line amortization method and also uses a discount account. Assume an annual market rate of interest of 7 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 answer to whole dollars.) Required: 1. Prepare the journal entry to record the issuance of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 2. Prepare the journal entry to record the interest payment on December 31 of this year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 3. How will the bonds be reported on Clearwater's December 31 Balance Sheet?

Answer 1

Issue price:
Present value of interest annual received for 10 years ( $ 45660* Annuity factor at 7% i.e. 7.0236)									320697.6
Present value of Maturity received at year-10 ($761000* 0.5083)									386816.3
ISSUE PRICE									707514
Journal Entry:
a.	Cash Account Dr.					707514
	Discount on bonds payable (761000-707514)					53486
	Bonds payable						761000
b.	Interest expense Dr.					51009
	Cash Account		(761000*6%)				45660
	Discount on Bonds payable (53486/10)						5349
Balance Sheet:
Bonds payable						761000
Less: Disccount on bonds payable				(53486-5349)		48137
Net balance in bonds payable						712863