Bond Payable On January 1, 2006, Matrix Corporation issued $800,000, 5%,5-year b
ID: 2457858 • Letter: B
Question
Bond Payable
On January 1, 2006, Matrix Corporation issued $800,000, 5%,5-year bonds dated January 1, 2006, at 95. The bonds pay annualinterest on January 1. The company uses the straight-line method ofamortization and has a calendar year end.
Required:
a. What amount was received for the bonds?
b. Was the market interest rate equal to, greater than, or lessthan 5 percent at the date of issue? Explain.
c. What is the premium or discount amortization for the firstinterest period?
d. How much bond interest expense is recorded for the year endDecember 31, 2005?
e. What is the carrying value of the bonds on December31, 2009?
f. Prepare the entry to issue the bonds on January 1, 2006.
g. Prepare the necessary entry to record interest expense onDecember 31,2006.
Explanation / Answer
JournalEntries
a Amount received for the bonds 800,000 * 0.95 760,000.00 b The bonds are selling at a discount . Hence , the market rate is greater than 5% c Discount amortization for the first period Bond discount / term of the bond 40,000 / 5 8,000.00 d Interest expense for the year ended 31-12-05 ( 800,000 * 0.05 ) + 8000 48,000.00 e Carrying Value of the bonds on 31 -12 -09 Face Value of Bonds + Amortized discount 760,000 + ( 8000 * 4 ) 792,000.00JournalEntries
f Cash 760,000.00 Discount on Bonds Payable 40,000.00 Bonds Payable 800,000.00 g Interest Expense 48,000.00 Cash 40,000.00 Discount Amortized 8,000.00