Answered

On January 1, 2021, Universe of Fun issues $750,000, 9% bonds that mature in 15 years. The market interest rate for bonds of similar risk and maturity is 10%, and the bonds issue for $692,353. Interest is paid semiannually on June 30 and December 31. Record the issuance of the bonds on January 1, the interest payments on June 30, and December 31, 2021.

Answer :

anthougo

Answer:

Universe of Fun

Journal Entries are used to record transactions:

January 1, 2021:

Debit Cash Account $692,353

Debit Bonds Discount $57,647

Credit Bonds Payable $750,000

To record the issue of 9% bonds, semiannual interest, that mature in 15 years.

June 30, 2021:

Debit Interest Expense $35,672

Credit Discount Amortization $1,922

Credit Cash Account $33,750

To record the interest expense and discount amortization.

December 31, 2021:

Debit Interest Expense $35,672

Credit Discount Amortization $1,922

Credit Cash Account $33,750

To record the interest expense and discount amortization.

Step-by-step explanation:

Bonds Payable = $750,000

Bonds issued at a discount = $692,353

Bonds discount = $57,647 ($750,000 - $692,353)

Interest rate = 9%

Interest expense, semiannually = $33,750 ($750,000 * 9%)/2

Maturity of bonds = 15 years

Bonds discount will be amortized over 15 at $3,843 per annum ($57,647/15) on straight-line basis

Bonds discount semiannually = $1,922

b) Bonds discount arise as Universe of Fun issues the $750,000 bonds for $692,353 (less by $57,647).  This means that the bondholders are paying less than the face value, but will be repaid the full face value at maturity.

Other Questions