Recording and Reporting a Bond Issued at a Discount (with Discount Account) (AP10-4) LO10-4 Claire Corporation is planning to issue bonds with a face value of $100,000 and a coupon rate of 8 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 12 percent. Required: 1. Provide the journal entry to record the issuance of the bonds. 2. Provide the journal entry to record the interest payment on March 31, June 30, September 30, and December 31 of this year. 3. What bonds payable amount will Claire report on this year’s December 31 balance sheet ?

Question

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Answer 1

Textbook Question

Chapter 10, Problem 10.7P

Recording and Reporting a Bond Issued at a Discount (with Discount Account) (AP10-4)

LO10-4 Claire Corporation is planning to issue bonds with a face value of $100,000 and a coupon rate of 8 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 12 percent.

Required:

1. Provide the journal entry to record the issuance of the bonds.
2. Provide the journal entry to record the interest payment on March 31, June 30, September 30, and December 31 of this year.
3. What bonds payable amount will Claire report on this year’s December 31 balance sheet?

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

1.

Expert Solution

To determine

Prepare journal entry to record the sale of the bonds on January 1.

Explanation of Solution

Bonds: Bonds are long-term promissory notes that are issued by a company while borrowing money from investors to raise fund for financing the operations.

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.

Bond Discount: It occurs when the bonds are issued at a low price than the face value.

Effective-interest amortization method: Effective-interest amortization method is an amortization model that apportions the amount of bond discount or premium based on the market interest rate.

Prepare journal entry for the sale of the bonds on January 1.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
January 1	Cash (1)				92,980
	Bond Discount (2)				7,020
		Bonds Payable				100,000
			(To record issuance of bonds payable at discount)

Table (1)

Cash is an asset and it is increased. So, debit it by $92,980.
Bond Discount is an adjunct liability account and it is decreased. So, debit it by $7,020.
Bonds payable is a liability and it is increased. So, credit it by $100,000.

Working notes:

Determine the issuance price of the bonds.

Step 1: Calculate the cash interest payment for bonds.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$

Step 2: Calculate the present value of cash interest payment.

Particulars	Amount
Interest payment (a)	$2,000
PV factor at annual market interest rate of 3% for 8 periods (b)	7.01969
Present value $(a) ×(b)$	$14,039

Table (2)

Note: The present value factor for 8 periods at 3% interest would be 7.01969 (Refer Appendix E (Table E.2) in the book for present value factor).

Step 3: Calculate the present value of single principal payment of $100,000 (principal amount) at 3% for 8 periods.

Particulars	Amount
Single principal payment (a)	$100,000
PV factor at annual market interest rate of 3% for 8 periods (b)	0.78941
Present value $(a) ×(b)$	$78,941

Table (3)

Note: The present value factor for 8 periods at 3% interest would be 0.78941 (Refer Appendix E (Table E.1) in the book for present value factor).

Step 4: Calculate the issue price of the bonds.

$Issue price of the bonds =(Present value of interest payment + Present value of single principal payment)=($14,039(from table 1)+$78,941(from table 2)) =$92,980$ (1)

Calculate the amount of bond discount.

$Bond discount = (Face value − Cash received) =$100,000−$92,980=$7,020$ (2)

2.

Expert Solution

To determine

Prepare journal entry to record payment of interest on March 31.

Explanation of Solution

Prepare journal entry for payment of interest on March 31.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
March 31	Interest Expense (4)				2,789
		Bond Discount (5)				789
		Cash (3)				2,000
			(To record payment of interest)

Table (4)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,789.
Bond discount is an adjunct liability account and it is increased. So, credit it by $789.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (3)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=$92,980×12%×312=$2,789$ (4)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,789−$2,000=$789$ (5)

Expert Solution

To determine

Prepare journal entry to record payment of interest on June 30.

Explanation of Solution

Prepare journal entry for payment of interest on June 30.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
June 30	Interest Expense (7)				2,813
		Bond Discount (8)				813
		Cash (6)				2,000
			(To record payment of interest)

Table (5)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,813.
Bond discount is an adjunct liability account and it is increased. So, credit it by $813.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (6)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=($92,980+$789)×12%×312=$2,813$ (7)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,813−$2,000=$813$ (8)

Expert Solution

To determine

Prepare journal entry to record payment of interest on September 30.

Explanation of Solution

Prepare journal entry for payment of interest on September 30.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
September 30	Interest Expense (10)				2,837
		Bond Discount (11)				837
		Cash (9)				2,000
			(To record payment of interest)

Table (6)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,837.
Bond discount is an adjunct liability account and it is increased. So, credit it by $837.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (9)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=($92,980+$789+$813)×12%×312=$2,837$ (10)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,837−$2,000=$837$ (11)

Expert Solution

To determine

Prepare journal entry to record payment of interest on December 31.

Explanation of Solution

Prepare journal entry for payment of interest on December 31.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
December 31	Interest Expense (13)				2,863
		Bond Discount (14)				863
		Cash (12)				2,000
			(To record payment of interest)

Table (7)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,863.
Bond discount is an adjunct liability account and it is increased. So, credit it by $863.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (12)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=($92,980+$789+$813+$837)×12%×312=$2,863$ (13)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,863−$2,000=$863$ (14)

3.

Expert Solution

To determine

Show the presentation of bonds payable that would be reported on December 31 balance sheet.

Explanation of Solution

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.

Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources, on a specific date. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and stockholders’ equity.

The presentation of bonds payable that would be reported on December 31 balance sheet is as shown below:

Corporation C

Balance Sheet (Partial)

As of December 31

Long-term Liabilities:

Bonds Payable (15)

$96,282

Table (8)

Working note:

Calculate the amount of bonds payable on December 31.

$Bonds payable on December 31 =(Beginning book value of bonds+ Discount amortized on March 31 + Discount amortized on June 30+ Discount amortized on September 30+ Discount amortized on December 31) =($92,980+$789+$813+$837+$863)=$96,282$ (15)

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Answer 2

Textbook Question

Chapter 10, Problem 10.7P

Recording and Reporting a Bond Issued at a Discount (with Discount Account) (AP10-4)

LO10-4 Claire Corporation is planning to issue bonds with a face value of $100,000 and a coupon rate of 8 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 12 percent.

Required:

1. Provide the journal entry to record the issuance of the bonds.
2. Provide the journal entry to record the interest payment on March 31, June 30, September 30, and December 31 of this year.
3. What bonds payable amount will Claire report on this year’s December 31 balance sheet?

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

1.

Expert Solution

To determine

Prepare journal entry to record the sale of the bonds on January 1.

Explanation of Solution

Bonds: Bonds are long-term promissory notes that are issued by a company while borrowing money from investors to raise fund for financing the operations.

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.

Bond Discount: It occurs when the bonds are issued at a low price than the face value.

Effective-interest amortization method: Effective-interest amortization method is an amortization model that apportions the amount of bond discount or premium based on the market interest rate.

Prepare journal entry for the sale of the bonds on January 1.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
January 1	Cash (1)				92,980
	Bond Discount (2)				7,020
		Bonds Payable				100,000
			(To record issuance of bonds payable at discount)

Table (1)

Cash is an asset and it is increased. So, debit it by $92,980.
Bond Discount is an adjunct liability account and it is decreased. So, debit it by $7,020.
Bonds payable is a liability and it is increased. So, credit it by $100,000.

Working notes:

Determine the issuance price of the bonds.

Step 1: Calculate the cash interest payment for bonds.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$

Step 2: Calculate the present value of cash interest payment.

Particulars	Amount
Interest payment (a)	$2,000
PV factor at annual market interest rate of 3% for 8 periods (b)	7.01969
Present value $(a) ×(b)$	$14,039

Table (2)

Note: The present value factor for 8 periods at 3% interest would be 7.01969 (Refer Appendix E (Table E.2) in the book for present value factor).

Step 3: Calculate the present value of single principal payment of $100,000 (principal amount) at 3% for 8 periods.

Particulars	Amount
Single principal payment (a)	$100,000
PV factor at annual market interest rate of 3% for 8 periods (b)	0.78941
Present value $(a) ×(b)$	$78,941

Table (3)

Note: The present value factor for 8 periods at 3% interest would be 0.78941 (Refer Appendix E (Table E.1) in the book for present value factor).

Step 4: Calculate the issue price of the bonds.

$Issue price of the bonds =(Present value of interest payment + Present value of single principal payment)=($14,039(from table 1)+$78,941(from table 2)) =$92,980$ (1)

Calculate the amount of bond discount.

$Bond discount = (Face value − Cash received) =$100,000−$92,980=$7,020$ (2)

2.

Expert Solution

To determine

Prepare journal entry to record payment of interest on March 31.

Explanation of Solution

Prepare journal entry for payment of interest on March 31.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
March 31	Interest Expense (4)				2,789
		Bond Discount (5)				789
		Cash (3)				2,000
			(To record payment of interest)

Table (4)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,789.
Bond discount is an adjunct liability account and it is increased. So, credit it by $789.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (3)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=$92,980×12%×312=$2,789$ (4)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,789−$2,000=$789$ (5)

Expert Solution

To determine

Prepare journal entry to record payment of interest on June 30.

Explanation of Solution

Prepare journal entry for payment of interest on June 30.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
June 30	Interest Expense (7)				2,813
		Bond Discount (8)				813
		Cash (6)				2,000
			(To record payment of interest)

Table (5)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,813.
Bond discount is an adjunct liability account and it is increased. So, credit it by $813.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (6)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=($92,980+$789)×12%×312=$2,813$ (7)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,813−$2,000=$813$ (8)

Expert Solution

To determine

Prepare journal entry to record payment of interest on September 30.

Explanation of Solution

Prepare journal entry for payment of interest on September 30.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
September 30	Interest Expense (10)				2,837
		Bond Discount (11)				837
		Cash (9)				2,000
			(To record payment of interest)

Table (6)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,837.
Bond discount is an adjunct liability account and it is increased. So, credit it by $837.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (9)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=($92,980+$789+$813)×12%×312=$2,837$ (10)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,837−$2,000=$837$ (11)

Expert Solution

To determine

Prepare journal entry to record payment of interest on December 31.

Explanation of Solution

Prepare journal entry for payment of interest on December 31.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
December 31	Interest Expense (13)				2,863
		Bond Discount (14)				863
		Cash (12)				2,000
			(To record payment of interest)

Table (7)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,863.
Bond discount is an adjunct liability account and it is increased. So, credit it by $863.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (12)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=($92,980+$789+$813+$837)×12%×312=$2,863$ (13)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,863−$2,000=$863$ (14)

3.

Expert Solution

To determine

Show the presentation of bonds payable that would be reported on December 31 balance sheet.

Explanation of Solution

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.

Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources, on a specific date. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and stockholders’ equity.

The presentation of bonds payable that would be reported on December 31 balance sheet is as shown below:

Corporation C

Balance Sheet (Partial)

As of December 31

Long-term Liabilities:

Bonds Payable (15)

$96,282

Table (8)

Working note:

Calculate the amount of bonds payable on December 31.

$Bonds payable on December 31 =(Beginning book value of bonds+ Discount amortized on March 31 + Discount amortized on June 30+ Discount amortized on September 30+ Discount amortized on December 31) =($92,980+$789+$813+$837+$863)=$96,282$ (15)

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Answer 3

Textbook Question

Chapter 10, Problem 10.7P

Recording and Reporting a Bond Issued at a Discount (with Discount Account) (AP10-4)

LO10-4 Claire Corporation is planning to issue bonds with a face value of $100,000 and a coupon rate of 8 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 12 percent.

Required:

1. Provide the journal entry to record the issuance of the bonds.
2. Provide the journal entry to record the interest payment on March 31, June 30, September 30, and December 31 of this year.
3. What bonds payable amount will Claire report on this year’s December 31 balance sheet?

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

1.

Expert Solution

To determine

Prepare journal entry to record the sale of the bonds on January 1.

Explanation of Solution

Bonds: Bonds are long-term promissory notes that are issued by a company while borrowing money from investors to raise fund for financing the operations.

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.

Bond Discount: It occurs when the bonds are issued at a low price than the face value.

Effective-interest amortization method: Effective-interest amortization method is an amortization model that apportions the amount of bond discount or premium based on the market interest rate.

Prepare journal entry for the sale of the bonds on January 1.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
January 1	Cash (1)				92,980
	Bond Discount (2)				7,020
		Bonds Payable				100,000
			(To record issuance of bonds payable at discount)

Table (1)

Cash is an asset and it is increased. So, debit it by $92,980.
Bond Discount is an adjunct liability account and it is decreased. So, debit it by $7,020.
Bonds payable is a liability and it is increased. So, credit it by $100,000.

Working notes:

Determine the issuance price of the bonds.

Step 1: Calculate the cash interest payment for bonds.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$

Step 2: Calculate the present value of cash interest payment.

Particulars	Amount
Interest payment (a)	$2,000
PV factor at annual market interest rate of 3% for 8 periods (b)	7.01969
Present value $(a) ×(b)$	$14,039

Table (2)

Note: The present value factor for 8 periods at 3% interest would be 7.01969 (Refer Appendix E (Table E.2) in the book for present value factor).

Step 3: Calculate the present value of single principal payment of $100,000 (principal amount) at 3% for 8 periods.

Particulars	Amount
Single principal payment (a)	$100,000
PV factor at annual market interest rate of 3% for 8 periods (b)	0.78941
Present value $(a) ×(b)$	$78,941

Table (3)

Note: The present value factor for 8 periods at 3% interest would be 0.78941 (Refer Appendix E (Table E.1) in the book for present value factor).

Step 4: Calculate the issue price of the bonds.

$Issue price of the bonds =(Present value of interest payment + Present value of single principal payment)=($14,039(from table 1)+$78,941(from table 2)) =$92,980$ (1)

Calculate the amount of bond discount.

$Bond discount = (Face value − Cash received) =$100,000−$92,980=$7,020$ (2)

2.

Expert Solution

To determine

Prepare journal entry to record payment of interest on March 31.

Explanation of Solution

Prepare journal entry for payment of interest on March 31.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
March 31	Interest Expense (4)				2,789
		Bond Discount (5)				789
		Cash (3)				2,000
			(To record payment of interest)

Table (4)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,789.
Bond discount is an adjunct liability account and it is increased. So, credit it by $789.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (3)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=$92,980×12%×312=$2,789$ (4)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,789−$2,000=$789$ (5)

Expert Solution

To determine

Prepare journal entry to record payment of interest on June 30.

Explanation of Solution

Prepare journal entry for payment of interest on June 30.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
June 30	Interest Expense (7)				2,813
		Bond Discount (8)				813
		Cash (6)				2,000
			(To record payment of interest)

Table (5)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,813.
Bond discount is an adjunct liability account and it is increased. So, credit it by $813.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (6)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=($92,980+$789)×12%×312=$2,813$ (7)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,813−$2,000=$813$ (8)

Expert Solution

To determine

Prepare journal entry to record payment of interest on September 30.

Explanation of Solution

Prepare journal entry for payment of interest on September 30.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
September 30	Interest Expense (10)				2,837
		Bond Discount (11)				837
		Cash (9)				2,000
			(To record payment of interest)

Table (6)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,837.
Bond discount is an adjunct liability account and it is increased. So, credit it by $837.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (9)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=($92,980+$789+$813)×12%×312=$2,837$ (10)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,837−$2,000=$837$ (11)

Expert Solution

To determine

Prepare journal entry to record payment of interest on December 31.

Explanation of Solution

Prepare journal entry for payment of interest on December 31.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
December 31	Interest Expense (13)				2,863
		Bond Discount (14)				863
		Cash (12)				2,000
			(To record payment of interest)

Table (7)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,863.
Bond discount is an adjunct liability account and it is increased. So, credit it by $863.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (12)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=($92,980+$789+$813+$837)×12%×312=$2,863$ (13)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,863−$2,000=$863$ (14)

3.

Expert Solution

To determine

Show the presentation of bonds payable that would be reported on December 31 balance sheet.

Explanation of Solution

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.

Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources, on a specific date. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and stockholders’ equity.

The presentation of bonds payable that would be reported on December 31 balance sheet is as shown below:

Corporation C

Balance Sheet (Partial)

As of December 31

Long-term Liabilities:

Bonds Payable (15)

$96,282

Table (8)

Working note:

Calculate the amount of bonds payable on December 31.

$Bonds payable on December 31 =(Beginning book value of bonds+ Discount amortized on March 31 + Discount amortized on June 30+ Discount amortized on September 30+ Discount amortized on December 31) =($92,980+$789+$813+$837+$863)=$96,282$ (15)

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Answer 4

Textbook Question

Chapter 10, Problem 10.7P

Recording and Reporting a Bond Issued at a Discount (with Discount Account) (AP10-4)

LO10-4 Claire Corporation is planning to issue bonds with a face value of $100,000 and a coupon rate of 8 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 12 percent.

Required:

1. Provide the journal entry to record the issuance of the bonds.
2. Provide the journal entry to record the interest payment on March 31, June 30, September 30, and December 31 of this year.
3. What bonds payable amount will Claire report on this year’s December 31 balance sheet?

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

1.

Expert Solution

To determine

Prepare journal entry to record the sale of the bonds on January 1.

Explanation of Solution

Bonds: Bonds are long-term promissory notes that are issued by a company while borrowing money from investors to raise fund for financing the operations.

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.

Bond Discount: It occurs when the bonds are issued at a low price than the face value.

Effective-interest amortization method: Effective-interest amortization method is an amortization model that apportions the amount of bond discount or premium based on the market interest rate.

Prepare journal entry for the sale of the bonds on January 1.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
January 1	Cash (1)				92,980
	Bond Discount (2)				7,020
		Bonds Payable				100,000
			(To record issuance of bonds payable at discount)

Table (1)

Cash is an asset and it is increased. So, debit it by $92,980.
Bond Discount is an adjunct liability account and it is decreased. So, debit it by $7,020.
Bonds payable is a liability and it is increased. So, credit it by $100,000.

Working notes:

Determine the issuance price of the bonds.

Step 1: Calculate the cash interest payment for bonds.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$

Step 2: Calculate the present value of cash interest payment.

Particulars	Amount
Interest payment (a)	$2,000
PV factor at annual market interest rate of 3% for 8 periods (b)	7.01969
Present value $(a) ×(b)$	$14,039

Table (2)

Note: The present value factor for 8 periods at 3% interest would be 7.01969 (Refer Appendix E (Table E.2) in the book for present value factor).

Step 3: Calculate the present value of single principal payment of $100,000 (principal amount) at 3% for 8 periods.

Particulars	Amount
Single principal payment (a)	$100,000
PV factor at annual market interest rate of 3% for 8 periods (b)	0.78941
Present value $(a) ×(b)$	$78,941

Table (3)

Note: The present value factor for 8 periods at 3% interest would be 0.78941 (Refer Appendix E (Table E.1) in the book for present value factor).

Step 4: Calculate the issue price of the bonds.

$Issue price of the bonds =(Present value of interest payment + Present value of single principal payment)=($14,039(from table 1)+$78,941(from table 2)) =$92,980$ (1)

Calculate the amount of bond discount.

$Bond discount = (Face value − Cash received) =$100,000−$92,980=$7,020$ (2)

2.

Expert Solution

To determine

Prepare journal entry to record payment of interest on March 31.

Explanation of Solution

Prepare journal entry for payment of interest on March 31.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
March 31	Interest Expense (4)				2,789
		Bond Discount (5)				789
		Cash (3)				2,000
			(To record payment of interest)

Table (4)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,789.
Bond discount is an adjunct liability account and it is increased. So, credit it by $789.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (3)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=$92,980×12%×312=$2,789$ (4)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,789−$2,000=$789$ (5)

Expert Solution

To determine

Prepare journal entry to record payment of interest on June 30.

Explanation of Solution

Prepare journal entry for payment of interest on June 30.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
June 30	Interest Expense (7)				2,813
		Bond Discount (8)				813
		Cash (6)				2,000
			(To record payment of interest)

Table (5)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,813.
Bond discount is an adjunct liability account and it is increased. So, credit it by $813.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (6)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=($92,980+$789)×12%×312=$2,813$ (7)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,813−$2,000=$813$ (8)

Expert Solution

To determine

Prepare journal entry to record payment of interest on September 30.

Explanation of Solution

Prepare journal entry for payment of interest on September 30.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
September 30	Interest Expense (10)				2,837
		Bond Discount (11)				837
		Cash (9)				2,000
			(To record payment of interest)

Table (6)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,837.
Bond discount is an adjunct liability account and it is increased. So, credit it by $837.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (9)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=($92,980+$789+$813)×12%×312=$2,837$ (10)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,837−$2,000=$837$ (11)

Expert Solution

To determine

Prepare journal entry to record payment of interest on December 31.

Explanation of Solution

Prepare journal entry for payment of interest on December 31.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
December 31	Interest Expense (13)				2,863
		Bond Discount (14)				863
		Cash (12)				2,000
			(To record payment of interest)

Table (7)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,863.
Bond discount is an adjunct liability account and it is increased. So, credit it by $863.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (12)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=($92,980+$789+$813+$837)×12%×312=$2,863$ (13)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,863−$2,000=$863$ (14)

3.

Expert Solution

To determine

Show the presentation of bonds payable that would be reported on December 31 balance sheet.

Explanation of Solution

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.

Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources, on a specific date. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and stockholders’ equity.

The presentation of bonds payable that would be reported on December 31 balance sheet is as shown below:

Corporation C

Balance Sheet (Partial)

As of December 31

Long-term Liabilities:

Bonds Payable (15)

$96,282

Table (8)

Working note:

Calculate the amount of bonds payable on December 31.

$Bonds payable on December 31 =(Beginning book value of bonds+ Discount amortized on March 31 + Discount amortized on June 30+ Discount amortized on September 30+ Discount amortized on December 31) =($92,980+$789+$813+$837+$863)=$96,282$ (15)

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Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

1.

Expert Solution

To determine

Prepare journal entry to record the sale of the bonds on January 1.

Explanation of Solution

Bonds: Bonds are long-term promissory notes that are issued by a company while borrowing money from investors to raise fund for financing the operations.

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.

Bond Discount: It occurs when the bonds are issued at a low price than the face value.

Effective-interest amortization method: Effective-interest amortization method is an amortization model that apportions the amount of bond discount or premium based on the market interest rate.

Prepare journal entry for the sale of the bonds on January 1.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
January 1	Cash (1)				92,980
	Bond Discount (2)				7,020
		Bonds Payable				100,000
			(To record issuance of bonds payable at discount)

Table (1)

Cash is an asset and it is increased. So, debit it by $92,980.
Bond Discount is an adjunct liability account and it is decreased. So, debit it by $7,020.
Bonds payable is a liability and it is increased. So, credit it by $100,000.

Working notes:

Determine the issuance price of the bonds.

Step 1: Calculate the cash interest payment for bonds.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$

Step 2: Calculate the present value of cash interest payment.

Particulars	Amount
Interest payment (a)	$2,000
PV factor at annual market interest rate of 3% for 8 periods (b)	7.01969
Present value $(a) ×(b)$	$14,039

Table (2)

Note: The present value factor for 8 periods at 3% interest would be 7.01969 (Refer Appendix E (Table E.2) in the book for present value factor).

Step 3: Calculate the present value of single principal payment of $100,000 (principal amount) at 3% for 8 periods.

Particulars	Amount
Single principal payment (a)	$100,000
PV factor at annual market interest rate of 3% for 8 periods (b)	0.78941
Present value $(a) ×(b)$	$78,941

Table (3)

Note: The present value factor for 8 periods at 3% interest would be 0.78941 (Refer Appendix E (Table E.1) in the book for present value factor).

Step 4: Calculate the issue price of the bonds.

$Issue price of the bonds =(Present value of interest payment + Present value of single principal payment)=($14,039(from table 1)+$78,941(from table 2)) =$92,980$ (1)

Calculate the amount of bond discount.

$Bond discount = (Face value − Cash received) =$100,000−$92,980=$7,020$ (2)

2.

Expert Solution

To determine

Prepare journal entry to record payment of interest on March 31.

Explanation of Solution

Prepare journal entry for payment of interest on March 31.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
March 31	Interest Expense (4)				2,789
		Bond Discount (5)				789
		Cash (3)				2,000
			(To record payment of interest)

Table (4)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,789.
Bond discount is an adjunct liability account and it is increased. So, credit it by $789.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (3)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=$92,980×12%×312=$2,789$ (4)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,789−$2,000=$789$ (5)

Expert Solution

To determine

Prepare journal entry to record payment of interest on June 30.

Explanation of Solution

Prepare journal entry for payment of interest on June 30.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
June 30	Interest Expense (7)				2,813
		Bond Discount (8)				813
		Cash (6)				2,000
			(To record payment of interest)

Table (5)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,813.
Bond discount is an adjunct liability account and it is increased. So, credit it by $813.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (6)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=($92,980+$789)×12%×312=$2,813$ (7)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,813−$2,000=$813$ (8)

Expert Solution

To determine

Prepare journal entry to record payment of interest on September 30.

Explanation of Solution

Prepare journal entry for payment of interest on September 30.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
September 30	Interest Expense (10)				2,837
		Bond Discount (11)				837
		Cash (9)				2,000
			(To record payment of interest)

Table (6)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,837.
Bond discount is an adjunct liability account and it is increased. So, credit it by $837.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (9)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=($92,980+$789+$813)×12%×312=$2,837$ (10)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,837−$2,000=$837$ (11)

Expert Solution

To determine

Prepare journal entry to record payment of interest on December 31.

Explanation of Solution

Prepare journal entry for payment of interest on December 31.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
December 31	Interest Expense (13)				2,863
		Bond Discount (14)				863
		Cash (12)				2,000
			(To record payment of interest)

Table (7)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,863.
Bond discount is an adjunct liability account and it is increased. So, credit it by $863.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (12)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=($92,980+$789+$813+$837)×12%×312=$2,863$ (13)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,863−$2,000=$863$ (14)

3.

Expert Solution

To determine

Show the presentation of bonds payable that would be reported on December 31 balance sheet.

Explanation of Solution

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.

Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources, on a specific date. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and stockholders’ equity.

The presentation of bonds payable that would be reported on December 31 balance sheet is as shown below:

Corporation C

Balance Sheet (Partial)

As of December 31

Long-term Liabilities:

Bonds Payable (15)

$96,282

Table (8)

Working note:

Calculate the amount of bonds payable on December 31.

$Bonds payable on December 31 =(Beginning book value of bonds+ Discount amortized on March 31 + Discount amortized on June 30+ Discount amortized on September 30+ Discount amortized on December 31) =($92,980+$789+$813+$837+$863)=$96,282$ (15)

Answer 8

1.

Expert Solution

To determine

Prepare journal entry to record the sale of the bonds on January 1.

Explanation of Solution

Bonds: Bonds are long-term promissory notes that are issued by a company while borrowing money from investors to raise fund for financing the operations.

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.

Bond Discount: It occurs when the bonds are issued at a low price than the face value.

Effective-interest amortization method: Effective-interest amortization method is an amortization model that apportions the amount of bond discount or premium based on the market interest rate.

Prepare journal entry for the sale of the bonds on January 1.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
January 1	Cash (1)				92,980
	Bond Discount (2)				7,020
		Bonds Payable				100,000
			(To record issuance of bonds payable at discount)

Table (1)

Cash is an asset and it is increased. So, debit it by $92,980.
Bond Discount is an adjunct liability account and it is decreased. So, debit it by $7,020.
Bonds payable is a liability and it is increased. So, credit it by $100,000.

Working notes:

Determine the issuance price of the bonds.

Step 1: Calculate the cash interest payment for bonds.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$

Step 2: Calculate the present value of cash interest payment.

Particulars	Amount
Interest payment (a)	$2,000
PV factor at annual market interest rate of 3% for 8 periods (b)	7.01969
Present value $(a) ×(b)$	$14,039

Table (2)

Note: The present value factor for 8 periods at 3% interest would be 7.01969 (Refer Appendix E (Table E.2) in the book for present value factor).

Step 3: Calculate the present value of single principal payment of $100,000 (principal amount) at 3% for 8 periods.

Particulars	Amount
Single principal payment (a)	$100,000
PV factor at annual market interest rate of 3% for 8 periods (b)	0.78941
Present value $(a) ×(b)$	$78,941

Table (3)

Note: The present value factor for 8 periods at 3% interest would be 0.78941 (Refer Appendix E (Table E.1) in the book for present value factor).

Step 4: Calculate the issue price of the bonds.

$Issue price of the bonds =(Present value of interest payment + Present value of single principal payment)=($14,039(from table 1)+$78,941(from table 2)) =$92,980$ (1)

Calculate the amount of bond discount.

$Bond discount = (Face value − Cash received) =$100,000−$92,980=$7,020$ (2)

Answer 9

1.

Expert Solution

Answer 10

1.

Expert Solution

Answer 11

Expert Solution

Answer 12

To determine

Prepare journal entry to record the sale of the bonds on January 1.

Answer 13

Explanation of Solution

Bonds: Bonds are long-term promissory notes that are issued by a company while borrowing money from investors to raise fund for financing the operations.

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.

Bond Discount: It occurs when the bonds are issued at a low price than the face value.

Effective-interest amortization method: Effective-interest amortization method is an amortization model that apportions the amount of bond discount or premium based on the market interest rate.

Prepare journal entry for the sale of the bonds on January 1.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
January 1	Cash (1)				92,980
	Bond Discount (2)				7,020
		Bonds Payable				100,000
			(To record issuance of bonds payable at discount)

Table (1)

Cash is an asset and it is increased. So, debit it by $92,980.
Bond Discount is an adjunct liability account and it is decreased. So, debit it by $7,020.
Bonds payable is a liability and it is increased. So, credit it by $100,000.

Working notes:

Determine the issuance price of the bonds.

Step 1: Calculate the cash interest payment for bonds.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$

Step 2: Calculate the present value of cash interest payment.

Particulars	Amount
Interest payment (a)	$2,000
PV factor at annual market interest rate of 3% for 8 periods (b)	7.01969
Present value $(a) ×(b)$	$14,039

Table (2)

Note: The present value factor for 8 periods at 3% interest would be 7.01969 (Refer Appendix E (Table E.2) in the book for present value factor).

Step 3: Calculate the present value of single principal payment of $100,000 (principal amount) at 3% for 8 periods.

Particulars	Amount
Single principal payment (a)	$100,000
PV factor at annual market interest rate of 3% for 8 periods (b)	0.78941
Present value $(a) ×(b)$	$78,941

Table (3)

Note: The present value factor for 8 periods at 3% interest would be 0.78941 (Refer Appendix E (Table E.1) in the book for present value factor).

Step 4: Calculate the issue price of the bonds.

$Issue price of the bonds =(Present value of interest payment + Present value of single principal payment)=($14,039(from table 1)+$78,941(from table 2)) =$92,980$ (1)

Calculate the amount of bond discount.

$Bond discount = (Face value − Cash received) =$100,000−$92,980=$7,020$ (2)

Answer 14

2.

Expert Solution

To determine

Prepare journal entry to record payment of interest on March 31.

Explanation of Solution

Prepare journal entry for payment of interest on March 31.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
March 31	Interest Expense (4)				2,789
		Bond Discount (5)				789
		Cash (3)				2,000
			(To record payment of interest)

Table (4)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,789.
Bond discount is an adjunct liability account and it is increased. So, credit it by $789.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (3)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=$92,980×12%×312=$2,789$ (4)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,789−$2,000=$789$ (5)

Answer 15

2.

Expert Solution

Answer 16

2.

Expert Solution

Answer 17

Expert Solution

Answer 18

To determine

Prepare journal entry to record payment of interest on March 31.

Answer 19

Explanation of Solution

Prepare journal entry for payment of interest on March 31.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
March 31	Interest Expense (4)				2,789
		Bond Discount (5)				789
		Cash (3)				2,000
			(To record payment of interest)

Table (4)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,789.
Bond discount is an adjunct liability account and it is increased. So, credit it by $789.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (3)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=$92,980×12%×312=$2,789$ (4)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,789−$2,000=$789$ (5)

Answer 20

Expert Solution

To determine

Prepare journal entry to record payment of interest on June 30.

Explanation of Solution

Prepare journal entry for payment of interest on June 30.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
June 30	Interest Expense (7)				2,813
		Bond Discount (8)				813
		Cash (6)				2,000
			(To record payment of interest)

Table (5)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,813.
Bond discount is an adjunct liability account and it is increased. So, credit it by $813.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (6)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=($92,980+$789)×12%×312=$2,813$ (7)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,813−$2,000=$813$ (8)

Answer 21

Expert Solution

Answer 22

Expert Solution

Answer 23

Expert Solution

Answer 24

To determine

Prepare journal entry to record payment of interest on June 30.

Answer 25

Explanation of Solution

Prepare journal entry for payment of interest on June 30.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
June 30	Interest Expense (7)				2,813
		Bond Discount (8)				813
		Cash (6)				2,000
			(To record payment of interest)

Table (5)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,813.
Bond discount is an adjunct liability account and it is increased. So, credit it by $813.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (6)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=($92,980+$789)×12%×312=$2,813$ (7)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,813−$2,000=$813$ (8)

Answer 26

Expert Solution

To determine

Prepare journal entry to record payment of interest on September 30.

Explanation of Solution

Prepare journal entry for payment of interest on September 30.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
September 30	Interest Expense (10)				2,837
		Bond Discount (11)				837
		Cash (9)				2,000
			(To record payment of interest)

Table (6)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,837.
Bond discount is an adjunct liability account and it is increased. So, credit it by $837.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (9)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=($92,980+$789+$813)×12%×312=$2,837$ (10)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,837−$2,000=$837$ (11)

Answer 27

Expert Solution

Answer 28

Expert Solution

Answer 29

Expert Solution

Answer 30

To determine

Prepare journal entry to record payment of interest on September 30.

Answer 31

Explanation of Solution

Prepare journal entry for payment of interest on September 30.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
September 30	Interest Expense (10)				2,837
		Bond Discount (11)				837
		Cash (9)				2,000
			(To record payment of interest)

Table (6)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,837.
Bond discount is an adjunct liability account and it is increased. So, credit it by $837.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (9)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=($92,980+$789+$813)×12%×312=$2,837$ (10)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,837−$2,000=$837$ (11)

Answer 32

Expert Solution

To determine

Prepare journal entry to record payment of interest on December 31.

Explanation of Solution

Prepare journal entry for payment of interest on December 31.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
December 31	Interest Expense (13)				2,863
		Bond Discount (14)				863
		Cash (12)				2,000
			(To record payment of interest)

Table (7)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,863.
Bond discount is an adjunct liability account and it is increased. So, credit it by $863.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (12)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=($92,980+$789+$813+$837)×12%×312=$2,863$ (13)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,863−$2,000=$863$ (14)

Answer 33

Expert Solution

Answer 34

Expert Solution

Answer 35

Expert Solution

Answer 36

To determine

Prepare journal entry to record payment of interest on December 31.

Answer 37

Explanation of Solution

Prepare journal entry for payment of interest on December 31.

Date	Account Title and Explanation			Post Ref	Debit ($)	Credit ($)
December 31	Interest Expense (13)				2,863
		Bond Discount (14)				863
		Cash (12)				2,000
			(To record payment of interest)

Table (7)

Interest expense is an expense and it decreases the equity value. So, debit it by $2,863.
Bond discount is an adjunct liability account and it is increased. So, credit it by $863.
Cash is an asset and it is decreased. So, credit it by $2,000.

Working notes:

Calculate cash interest payment.

$Cash interest payment=Face value×Coupon rate×Interest time period=$100,000×8%×312=$2,000$ (12)

Calculate interest expense.

$Interest expense=Book value of bond ×Market interest×Time=($92,980+$789+$813+$837)×12%×312=$2,863$ (13)

Calculate bond discount.

$Bond discount=Interest Expense–Cash interest payment =$2,863−$2,000=$863$ (14)

Answer 38

3.

Expert Solution

To determine

Show the presentation of bonds payable that would be reported on December 31 balance sheet.

Explanation of Solution

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.

Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources, on a specific date. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and stockholders’ equity.

The presentation of bonds payable that would be reported on December 31 balance sheet is as shown below:

Corporation C

Balance Sheet (Partial)

As of December 31

Long-term Liabilities:

Bonds Payable (15)

$96,282

Table (8)

Working note:

Calculate the amount of bonds payable on December 31.

$Bonds payable on December 31 =(Beginning book value of bonds+ Discount amortized on March 31 + Discount amortized on June 30+ Discount amortized on September 30+ Discount amortized on December 31) =($92,980+$789+$813+$837+$863)=$96,282$ (15)

Answer 39

3.

Expert Solution

Answer 40

3.

Expert Solution

Answer 41

Expert Solution

Answer 42

To determine

Show the presentation of bonds payable that would be reported on December 31 balance sheet.

Answer 43

Explanation of Solution

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.

Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources, on a specific date. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and stockholders’ equity.

The presentation of bonds payable that would be reported on December 31 balance sheet is as shown below:

Corporation C

Balance Sheet (Partial)

As of December 31

Long-term Liabilities:

Bonds Payable (15)

$96,282

Table (8)

Working note:

Calculate the amount of bonds payable on December 31.

$Bonds payable on December 31 =(Beginning book value of bonds+ Discount amortized on March 31 + Discount amortized on June 30+ Discount amortized on September 30+ Discount amortized on December 31) =($92,980+$789+$813+$837+$863)=$96,282$ (15)

Answer 44

Ch. 10 - From the perspective of the issuer, what are some...Ch. 10 - What are the primary characteristics of a bond?...Ch. 10 - Prob. 3Q Ch. 10 - Differentiate between a bond indenture and a bond...Ch. 10 - Prob. 5Q Ch. 10 - Prob. 6Q Ch. 10 - Prob. 7Q Ch. 10 - Prob. 8Q Ch. 10 - What is the book value of a bond?Ch. 10 - Prob. 10Q

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