Question

Park Corporation is planning to issue bonds with a face value of $2,002,000 and a coupon rate of 10 percent. The bonds mature in 5 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 does not use a premium 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.) 1. Prepare the journal entry to record the issuance of the bonds. 2. Prepare the journal entry to record the interest payment on June 30 of this year. 3. What bonds payable amount will Park report on its June 30 balance sheet?

Answer 1

n= 10
I = 4.25%
Cashflows			Amount	PVF	Present value
Semi annual interest			100100	8.01089	801890.1
Principal			2002000	0.659537	1320393
Price of bonds					2122283
Amort Chart:
Period	Cash	Interest	premium	Carrying
	Payment	expenses	Amortized	value
01.01.				2122283
30.06.	100100	90197	9903	2112380
Journal entries:
Date	Accounts title and explanations				Debit $	Credit $
1-Jan	Cash account				2122283
	Bonds payable					2122283
30-Jun	Interest expense				90197
	Bonds payable				9903
	Cash account					100100
Balance Sheet on June30:
Bonds payable			2002000
Less: Unamortized premium			110380
Net Bonds payable			2112380