Question

Panamint Candy Company prepared the following amortization table for $600,000 of 5-year, 7% bonds issued and sold by Panamint on January 1, 2021, for $582,000: Period Cash Interest Discount on Discount on Carrying Value Payment Expense Bonds Payable Bonds Payable (Credit) (Debit) (Credit) Balance At issue $18,000 $582,000 06/30/21 $21,000 $22,800 $1,800 16,200 583,800 12/31/21 21,000 22,800 1,800 14,400 585,600 06/30/22 21,000 22,800 1,800 12,600 587,400 12/31/22 21,000 22,800 1,800 10,800 589,200 06/30/23 21,000 22,800 1,800 9,000 591,000 12/31/23 21,000 22,800 1,800 7,200 592,800 06/30/24 21,000 22,800 1,800 5,400 594,600 12/31/24 21,000 22,800 1,800 3,600 596,400 06/30/25 21,000 22,800 1,800 1,800 598,200 12/31/25 21,000 22,800 1,800 0 600,000

Required:

1. Prepare the entry to recognize the sale of the bonds on January 1, 2021.

2. Prepare the entry to recognize the first interest payment on June 30, 2021.

3. Determine the interest expense for these bonds that Panamint will report on its 2023 income statement.

4. Indicate how these bonds will appear in Panamint’s December 31, 2024 balance sheet.

Answer 1

Journal entries :

Date	account and explanation	debit	credit
Jan 1,2021	Cash	582000
	Discount on bonds payable	18000
	Bonds payable		600000
	(To record bond issue)
June 30,2021	Interest expense	22800
	Discount on bonds payable		1800
	Cash		21000
	(To record interest paid)

3) Interest expense will report on its 2023 income statement = 22800*2 = $45600

4) Presentation

Long term liabilities
Bonds payable	600000
Less: Unamortized discount on bonds payable (18000-14400)	-3600	596400