Question

E10-8 Recording and Reporting a Bond Issued at a Discount (with Discount Account) LO10-4

Park Corporation is planning to issue bonds with a face value of $800,000 and a coupon rate of 7.5 percent. The bonds mature in 8 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 also uses a discount 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 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 June 30 of this year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

3. What bond payable amount will Park report on its June 30 balance sheet? (Enter all amounts with a positive sign.)

Answer 1

Issue price:
Present value of interest of $ 30,000 for 16 periods at 4.25% (Annuity i.e.11.44)								343200
Present value of maturity value of $ 800000 at end of period16 (PVf i.e.0.5138)								411040
Issue price:								754240
Amortization table:
Date	Cash interest		Interest	Discount Amortized		Unamortized		Carrying
			Expense			Discount		Value of Bonds
Jan 1Yr-1						45760		754240
June30 Yr-1	30000		32055	2055		43705		756295
Journal Entries:
Date	Accounts title and explanation				Dr.	Cr.
jan1 Yr1	Cash Account Dr.				45,760
	Discount on Bonds payable Dr.				754,240
	Bonds payable					800,000
June30 Yr1	Interest expense Dr.				32055
	Cash Account					30000
	Discount on Bonds payable					2055
Bonds payable Amouont shown in Balance Sheet on June30:
Bonds payable (Gross)			800,000
Less: Discount on bonds payable			43705
Book value of bonds payable			756,295