Chapter 14, Problem 7QS

To determine

Concept Introduction:

Amortization of Bond Discount:

The company issues bond when it requires financing its project for a long term with a specified rate of interest payable at regular intervals or semi-annual or annual basis.

The issuance of bond at a price lower than the par value or face value of the bond indicates that bonds are issued at a discount when the interest rate stated is comparatively less than the market interest rates by which the investors earn a good return on their investment. In such a scenario, the discount amount which is the difference between the bond par value and the amount paid by the investors is recorded in a contra liability amount and the amount of reduced payment after discount is amortized over the term of the bonds.

Requirement 1a:

To discuss:

The entry to record the issuance of 10% five year bonds in the books of Sylvestor Company as on December 31^st 2016.

To determine

Requirement 1b:

To discuss:

The entry to record first semi-annual interest payment of Sylvestor Company due on June 30^th 2017.

To determine

Requirement 1c:

To discuss:

The entry to record the second interest payment on December 30^th 2017 in the books of Sylvestor Company that pays interest on semi-annual basis.