Introduction:Bond issuance refers to the process of raising, money from investors by issuing the bonds. Bonds are assumed debt on the company as there raise the liability of the company.
To determine:
Answer to Problem 5PSA
Discount on bond issuance is
Explanation of Solution
Prepare Journal Entry on 1stJanuary 2016
Date | Particulars | Debit | Credit |
Jan1 | Cash | ||
Discount on bonds payable | |||
Bonds payable | |||
(Being discount on bond issued) |
Working Note:-
2.
Introduction: Bond issuance refers to the process of raising, money from investors by issuing the bonds. Bonds are assumed debt on the company as there raise the liability of the company.
To determine: Total bond interest expenses which is over the lifetime of bond.
2.
Answer to Problem 5PSA
Total bond interest expenses are
Explanation of Solution
Determine the total bond interest expense:
Interest expense =
=
=
=
3.
Introduction: Bond issuance refers to the process of raising, money from investors by issuing the bonds. Bonds are assumed debt on the company as there raise the liability of the company.
To determine: Under straight line amortization for bonds’ first two years.
3.
Explanation of Solution
Amortization Table
$32,819/8 =4,102
Date | Unamortized Discount | Carrying Value |
1/01/2016 | ||
30/06/2016 | ||
31/12/2016 | ||
30/06/2017 | ||
31/12/2017 |
4.
Introduction: Bond issuance refers to the process of raising, money from investors by issuing the bonds. Bonds are assumed debt on the company as there raise the liability of the company.
To determine: Journal entry for interest payments for first two interest payment.
4.
Explanation of Solution
Date | Particulars | Debit | Credit |
30/06/2016 | Interest Expense | ||
Discount on bonds payable | |||
Cash | |||
( Being bonds issued on discount) | |||
31/12/2016 | Interest Expense | ||
Discount on bonds payable | |||
Cash | |||
( Being bonds issued on discount) |
Working Note:-
On 30th June 2016,
Interest Expense
Amortize Discount
Cash
On 31st December 2016,
Interest Expense
Amortize Discount =
5.
Introduction: Bond issuance refers to the process of raising, money from investors by issuing the bonds. Bonds are assumed debt on the company as there raise the liability of the company.
To determine: Changes that affect the amount reported on financial statement
5.
Answer to Problem 5PSA
Bonds are issued at premium as the contract rate is more than the market rate of the bond on date of issue.
Explanation of Solution
Bonds are issued at premium if the contract rate is more than the market rate of the bond on date of issue. On 1 January 2016 market rate is 4% and contract rate of bond is 5%. This implies that the bonds are issued at premium and total amount also includes the amount of premium which is received by issuer from the bondholders.
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