Bond Payable: On 7/1/14, Sasha issued $ 2,000,000 12% bonds, maturing in 5 years
ID: 2508090 • Letter: B
Question
Bond Payable:
On 7/1/14, Sasha issued $ 2,000,000 12% bonds, maturing in 5 years with a yield of 10%,
compounded semi-annually. The bonds pay interest semi-annually on June 30 and December 31
of each year. The bonds are to be accounted for under the effective interest method. Round to
the nearest dollar.
At what amount were the bonds issued? __________
a. Prepare a well-labeled schedule (with debits/credits shown) for the journal entries through the life of the Bond.
b. Prepare the original Journal Entry to record the issue of the Bond
c. Prepare the Journal Entry to record the 12/31/15 Interest related to the Bond
Explanation / Answer
Semiannual interest: 2000000*.12 *6/12 = 120000
semiannual months= 5*2 =10
semiannual yield = 10*6/12 = 5%
1)Issue price =[PVA 5%,10*Interest ]+[PVF 5%,10*Face value]
=[7.72173*120000]+ [.61391*2000000]
= 926607.6+ 1227820
= $ 2,154,428
2)
b)
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Date Account Title and explanation Debit credit