Park Corporation is planning to issue bonds with a face value of $2,800,000 and
ID: 2576899 • Letter: P
Question
Park Corporation is planning to issue bonds with a face value of $2,800,000 and a coupon rate of 7 percent. The bonds mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Park uses the effective-interest amortization method and also uses a premium account. Assume an annual market rate of interest of 6.0 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.)
Required:
1. Prepare the journal entry to record the issuance of the bonds: Issuances of the Bond on Jan. 01
2. Prepare the journal entry to record the interest payment on June 30, using effective-interest amortization.
3. How will Park present its bonds on its June 30 balance sheet? (Round your final answer to whole dollars.)
Explanation / Answer
principal 2,800,000 interest (2,800,000*7%*1/2)= 98000 Calculation of bond issue price where n=3% t = 20 years principal 2,800,000*.55368= 1550304 interest 98000*14.87747 = 1457992 bonds issue price 3008296 1) Journal entry for bonds issuance Date Accounting titles & Explanations Debit Credit 1-Jan Cash 3008296 premium on bonds payable 208,296 bonds payable 2,800,000 30-Jun interest expene 90249 premium pn bonds payable 7751 cash 98000 3) balance sheet (partial) bonds payable 2,800,000 Add:premium on bonds payable 200,545 3,000,545