Chapter 14, Problem 2BPSB

To determine

Issue of bond at discount:

When the coupon rate or contract rate of a bond is lower than the market interest rate, the bond is being issued at discount. The selling price of the bond will be lower than the face value of the bond under issue of bond at discount.

Straight Line Method Amortization of discount:

Under straight line amortization method, a specific amount of discount is amortized each period till its maturity period. The period ending amortization amount is computed by dividing the total discount by the number of periods in maturity of the bonds payable.

To determine:

1. Preparation of journal entry to record the bond’s issuance.

2. Computation of (a) the cash payment, (b) the straight-line discount amortization, and (c) the bond interest expense

3. Determine to total bond interest expense to be recognized over the life of the bonds.

4. Prepare the first two years of an amortization table using straight-line method.

5. Prepare the journal entries to record the first two interest payments.