Chapter 12, Problem 47CP

1.

To determine

Bonds: Bonds are long-term promissory notes that are represented 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.

Stated interest rate: It refers to the interest rate that is stated on the face of the bonds.

Market interest rate: It refers to the interest rate that the lenders expect, or demands from the borrower to part with their money as loan to them.

Time value of money: Any amount invested today earns an additional income, called interest income, after a certain period. This is called as time value of money.

Present Value: The value of today’s amount expected to be paid or received in the future at a compound interest rate is called as present value.

Straight-line amortization method: It is a method of bond amortization that spreads the amount of the bond discount or bond premium equally over the interest period. In this method, the amount of bond discount or bond premium is allocated equally for each interest period over the life of the bond.

To identify: The issue price of bonds.

2.

a.

To determine

To prepare: Journal entry to record cash received from the bond issue.

b.

To determine

To prepare: Journal entry to record cash received from the bond issue.

c.

To determine

To prepare: Journal entry to record semiannual interest and amortization of discount on bonds using straight-line amortization method.

d.

To determine

To prepare: Journal entry to record the payment on the mortgage payable for 2020.

3.

To determine

To calculate: Total interest expense incurred in 2020.