Question

Chapter 14 Accounting II

Make up a face value, face rate, term and a bond price for a bond. Please use a price other than 100. List each of your values and give me the entry to record the issue of your bond, the semiannual interest payment, and the amortization entry assuming the straight-line amortization method.

Answer 1

1. Basic Details

Face Value of Bond = $1000

Face rate = 5% per year payable semi annually

Term = 10 years

Bond Price = $990

2. Discount on Issue of Bonds = Face Value - Issue price = $1000 - 990 = $10

Amortization per semi annual period = Discount / Total periods = 10 / 20 = $0.50

3.

No.	General Journal	Debit	Credit
1	Cash	$990
	Discount on Bonds Payable	$10
	5% Bonds Payable		$1000
	(To record Issue of Bonds on discount)
2	Interest Expense (1000 * 5%/2)	$25
	Cash		$25
	(To record semi annual payment of interest on bond)
3	Interest Expense	$0.50
	Discount on Bonds Payable		$0.50
	(To record amortization of discount on bonds payable)

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