Question

Sama Company issued S.R800,000 in bonds dated April 1, 2020, due in Four years with ten percent interest payable annually on April 1. At the time of issue, the market rate for such bonds is 12 percent.

- Journalize the transactions from April 1, 2020 to April 1, 2021 (show the calculation)?

Answer 1

Date	Account titles	Debit	Credit
April 1,2020	Cash	751,402
	Discount on bonds payable	48,598
	Bonds payable		800,000
April 1,2021	Interest expense	90168
	Cash		80000
	Discount on bonds payable		10168

Workings:

Issue value of the bond = 800,000 * PVIF (12%, 4) + 80,000 PVIFA( 12%, 4) = 800,00*3.3121 + 80,0000 *0.735 = 751,402

Year	Interest paid [800,000 *10%]	Interest Expense [Carrying amount *12%]	Discount amortized	Unamortized discount	Carrying Amount of Note
				48,598	751,402
1	80000	90168	10168	38,429	761,571
2	80000	91388	11388	27,041	772,959
3	80000	92755	12755	14,286	785,714
4	80000	94286	14286	0	800,000

Year	PV Factor @12%
1	0.892857143
2	0.797193878
3	0.711780248
4	0.635518078
Total	3.037349347