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  3. 1. abc company issued $800,000 11, 10 year bond on

1. ABC company issued $800,000 11, 10 year bond on December 31, 2017 when the market...

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Accounting

1. ABC company issued $800,000 11, 10 year bond on December 31,2017 when the market rate for this type of bond is 12%. Interest ispayable annually on December 31.ABC uses the straight-line methodto amortize bond premium or discount.

a. How much will you receive? prepare the entry to issue thebond.

b. Record the entry to show the interest expense and the bondpremium or discount amortization on December 31, 2019?

c. what entry is made at the end of the 10 years to redeem (pay)the bonds at maturity after the last interest payment andamortization has been done?

2. You borrow $2000 and gave a note discounted for 5% for 5months. The note was discounted up front. Prepare the journal entryto issue the note.

Answer & Explanation Solved by verified expert
3.8 Ratings (466 Votes)

Solution 1a:

Computation of bond price
Table values are based on:
n= 10
i= 12%
Cash flow Table Value Amount Present Value
Par (Maturity) Value 0.322 $800,000.00 $257,600
Interest (Annuity) 5.650 $88,000.00 $497,200
Price of bonds $754,800
Journal Entries
Date Particulars Debit Credit
31-Dec-17 Cash Dr $754,800.00
Discount on issue of bond Dr $45,200.00
       To Bond Payable $800,000.00
(To record issue of bond at discount)

Solution 1b:

Journal Entries
Date Particulars Debit Credit
31-Dec-19 Interest Expense Dr $92,520.00
       To Cash $88,000.00
       To Discount on issue of bond $4,520.00
(To record interest payment and discount amortization)

Solution 1c:

Journal Entries
Date Particulars Debit Credit
31-Dec-17 Bond Payable Dr $800,000.00
       To Cash $800,000.00
(To record bond repayment at maturity)

solution 2:

Journal Entries
Event Particulars Debit Credit
1 Cash Dr $1,900.00
Interest expense Dr $100.00
       To Notes Payable $2,000.00
(To record amount borrowed by issuing note)

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