Patton issues $610,000 of 6.5%, four-year bonds dated January 1, 2011, that pay
ID: 2374699 • Letter: P
Question
Patton issues $610,000 of 6.5%, four-year bonds dated January 1, 2011, that pay interest semiannually on June 30 and December 31. They are issued at $579,203 and their market rate is 8% at the issue date.
Prepare the January 1, 2011, journal entry to record the bonds' issuance. (Omit the "$" sign in your response.)
Determine the total bond interest expense to be recognized over the bonds' life. (Omit the "$" sign in your response.)
Prepare a straight-line amortization table for the bonds' first two years. (Make sure that the unamortized discount is adjusted to "0" and the carrying value equals to face value of the bond in the last period. Round your intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)
Prepare the journal entries to record the first two interest payments. (Round your intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)
Patton issues $610,000 of 6.5%, four-year bonds dated January 1, 2011, that pay interest semiannually on June 30 and December 31. They are issued at $579,203 and their market rate is 8% at the issue date.
Explanation / Answer
Journal Entries:
I. For issue of bonds:
Dr Cash/Bank ................. ............... 645,669
Dr Discount on issue of bonds ......... 34,331
Cr Bonds .................................... .................. ............... 680,000
Note: The discount will be amortised annually over 4 years.
ii. For half-yearly interest payment on June 30:
Dr Interest on bonds ........... ............ 22,100
Cr Cash/Bank ........................ ........................... ......... 22,100
iii. For half-yearly interest payment on Dec. 31:
Dr Interest on bonds ........... ............ 22,100
Cr Cash/Bank ........................ ........................... ......... 22,100
Note: Interest calculated on $680,000 @6.5% p.a.