Claire Corporation is planning to issue bonds with a face value of $150,000 and
ID: 2573952 • Letter: C
Question
Claire Corporation is planning to issue bonds with a face value of $150,000 and a coupon rate of 6 percent. The bonds mature in two years and pay interest quarterly every March 31, June 30, September 30, and December 31. All of the bonds were sold on January 1 of this year. Claire uses the effective-interest amortization method and also uses a discount account. Assume an annual market rate of interest of 8 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.)
1. Provide the journal entry to record the issuance of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answers to nearest whole dollar amount.)
2. Provide the journal entry to record the interest payment on March 31, June 30, September 30, and December 31 of this year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answers to nearest whole dollar amount.)
3. What bonds payable amount will Claire report on this year’s December 31 balance sheet? (Round your final answers to nearest whole dollar amount.)
Explanation / Answer
Interest 2250 (150000*1.5%) At maturity 150000 Present value annuity 7.32548 (n=8, i= 2%) Present value factor 0.85349 Interest present value 16482 128024 Carrying value 144506 (16482+128024) Effective interest rate 1.50% 2% Year Cash paid Interest expense Discount amortized Discount on bonds bal. Carrying amount At issue 5494 144506 31-03-2017 2250 2890 640 4854 145146 30-06-2017 2250 2903 653 4201 145799 30-09-2017 2250 2916 666 3535 146465 31-12-2017 2250 2929 679 2856 147144 31-03-2018 2250 2943 693 2163 147837 30-06-2018 2250 2957 707 1456 148544 30-09-2018 2250 2971 721 735 149265 31-Dec-18 2250 2985 735 0 150000 1 01-Jan-17 Cash 144506 Discount on bonds 5494 Bonds payable 150000 2 31-03-2017 Interest expense 2890 Discount on bonds 640 Cash 2250 30-06-2017 Interest expense 2903 Discount on bonds 653 Cash 2250 30-09-2017 Interest expense 2916 Discount on bonds 666 Cash 2250 31-12-2017 Interest expense 2929 Discount on bonds 679 Cash 2250 3 Carrying value on 31 dec 2017 147144