District Water Company issued 10-year bonds with a face value of $100,000 and a
ID: 2481051 • Letter: D
Question
District Water Company issued 10-year bonds with a face value of $100,000 and a stated interest rate of 8.0%. The bonds are dated April 1, 2016, and call for semiannual interest payments on each April 1 and October 1. Due to market fluctuations, the bonds actually sold to yield 10.0% per year. 1. Compute the amount received for the bonds. 2. Compute the first interest and amortization amounts for the October 1, 2016, payment. 3. Prepare journal entries for the issuance of the bonds and for the first interest payment. 4. Compute the second interest and amortization amounts for the April 1, 2017, payment. District Water Company issued 10-year bonds with a face value of $100,000 and a stated interest rate of 8.0%. The bonds are dated April 1, 2016, and call for semiannual interest payments on each April 1 and October 1. Due to market fluctuations, the bonds actually sold to yield 10.0% per year. 1. Compute the amount received for the bonds. 2. Compute the first interest and amortization amounts for the October 1, 2016, payment. 3. Prepare journal entries for the issuance of the bonds and for the first interest payment. 4. Compute the second interest and amortization amounts for the April 1, 2017, payment.Explanation / Answer
The amount raised on issue of bonds =100000*8%/10% = $80000.
On 1st Oct 1st interest payment = 100000*8%*1/2 = $4000
Journal entries:
1) bank account Dr. 80000
Discount on issue of bonds Dr. 20000
To 8% Bonds account. 100000
( being issue of 8% bonds at 20000 discount)
Interest on issue of bonds. Dr. 4000
To. Bank Account. 4000
( being semi annual interest payment made)
4.
Interest on issue of bonds. Dr. 4000
To. Bank Account. 4000
( being semi annual interest payment made)