On January 1, 2016, the Diamond Association issued bonds with a face value of $2
ID: 2594159 • Letter: O
Question
On January 1, 2016, the Diamond Association issued bonds with a face value of $219,000, a stated rate of interest of 9 percent, and a 10-year term to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 11 percent at the time the bonds were issued. The bonds sold for $193,205. Diamond used the effective interest rate method to amortize the bond discount.
a. Determine the amount of the discount on the day of issue.
b. Determine the amount of interest expense recognized on December 31, 2016. (Round your answer to the nearest dollar amount.)
c. Determine the carrying value of the bond liability on December 31, 2016. (Round your answer to the nearest dollar amount.)
d. Provide the general journal entry necessary to record the December 31, 2016, interest expense. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to the nearest dollar amount.)
On January 1, 2016, the Diamond Association issued bonds with a face value of $219,000, a stated rate of interest of 9 percent, and a 10-year term to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 11 percent at the time the bonds were issued. The bonds sold for $193,205. Diamond used the effective interest rate method to amortize the bond discount.
a. Determine the amount of the discount on the day of issue.
b. Determine the amount of interest expense recognized on December 31, 2016. (Round your answer to the nearest dollar amount.)
c. Determine the carrying value of the bond liability on December 31, 2016. (Round your answer to the nearest dollar amount.)
d. Provide the general journal entry necessary to record the December 31, 2016, interest expense. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to the nearest dollar amount.)
Explanation / Answer
1) Discount on Bonds Face value of bonds 219,000 issue price of bonds 193,205 Discount on Bonds 25,795 b) Amount of interest expense 193,205*11% 21253 c) Carrying value of the bond liability' discount on bonds =(21,253 - 219000*9%)= 1543 Carrying value of the bond liability (193205 +1543)= 194748 d) Journal entry Date Accounting titles & Expalanations Debit Credit 12/31/2016 interest expense 21,253 Discount on bonds 1,543 cash 19710