**Educational Example: Analyzing Bond Issuance and Amortization****Case Study: Wang Corporation Bonds****Scenario:**Wang Corporation issued $100,000 five-year bonds on January 1, 2020. The bonds pay interest annually and have a stated rate of 6%. The market rate on the day of issue was 4%.**Requirements:**1. **Determine the Issue Price (PV) of the Bond:** - **N (Period of time)** - **I (Interest Rate)** - **PV (Present Value)** - **FV (Future Value)** - **PMT (Annuity)**2. **Prepare the Bond Amortization Schedule Using the Effective Interest Method:** | Year | Cash Interest Payment | Interest Expense | Amortization of Premium | Premium | Carrying Value | |-------------|-----------------------|------------------|-------------------------|---------|----------------| | Jan 1, 2020 | | | | | | | Dec 31, 2020| | | | | | | Dec 31, 2021| | | | | | | Dec 31, 2022| | | | | | | Dec 31, 2023| | | | | | | Dec 31, 2024| | | | | |3. **Record the Necessary Journal Entry at Date of Issue and First Interest Payment:** **General Journal** | | **DR** | **CR** | |-------------|--------|--------| | | | | | | | |4. **Analyze the Effect on Financial Statements of the Journal Entry at Date of Issue (a) and the First Interest Payment (b):** **Financial Statement Analysis** | | Assets = Liabilities + Equity | Revenues - Expenses = Net Income | |-------------|-------------------------------|----------------------------------| | (a) Date of Issue | | | (b) First Interest Payment | |This educational overview helps understand key accounting aspects in bond issuance and the impact of amortization schedules on financial statements.

Wang Corporation issued $100,000 5 year bonds January 1, 2020. The bonds pay interest annually and have a stated rate of 6%. The market on day of issue was 4%. Required 1 Determine the issue price (PV) of the bond. N (period of time) | (Interest) PV (Present Value FV (Future Value) PMT (Annuity) 2 Prepare the bond amortization schedule using the effective interest method. Cash Interest Interest Amortization of Year Premium Carrying Value Payment Expense Premium Jan 1, 2020 Dec 31, 2020 Page 1 Dec 31, 2021 Dec 31, 2022 Dec 31, 2023 Dec 31, 2024 3 Record the necessary journal entry at date of issue and first interest payment. General Journal DR CR

Wang Corporation issued $100,000 5 year bonds January 1, 2020. The bonds pay interest annually and have a stated rate of 6%. The market on day of issue was 4%. Required 1 Determine the issue price (PV) of the bond. N (period of time) | (Interest) PV (Present Value FV (Future Value) PMT (Annuity) 2 Prepare the bond amortization schedule using the effective interest method. Cash Interest Interest Amortization of Year Premium Carrying Value Payment Expense Premium Jan 1, 2020 Dec 31, 2020 Page 1 Dec 31, 2021 Dec 31, 2022 Dec 31, 2023 Dec 31, 2024 3 Record the necessary journal entry at date of issue and first interest payment. General Journal DR CR

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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