Question

Sama Company issued S.R800,000 in bonds dated April 1, 2020, due in Four years with ten...

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)?

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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
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