Question

On January 1 of this year, Clearwater Corporation sold bonds with a face value of $ 750,000 and a coupon rate of 8 percent. The bonds mature in 10 years and pay interest annually every December 31. Clearwater uses the straight-line amortization method and also uses a discount account. Assume an annual market rate of interest of 9 percent.
Required:
(a) Provide the journal entry to record the issuance of the bonds.

Answer 1

The journal entry records the issuance of the bonds.

Computation of bond price

Table values are based on:

n= 10    

i= 9%    

Cash flow Table Value Amount Present Value

Par (Maturity) Value 0.42241 $753,000 $318,075

Interest (Annuity) 6.41766 $60,240 $386,600

     

Price of bonds     $704,675

Journal Entries - Clearwater Corporation

Date Particulars Debit Credit

1-Jan Cash Dr $704,675.00  

 Discount on bond payable Dr $48,325.00  

          To Bond Payable   $753,000.00

 (To record issue of bond)    

     

31-Dec Interest expense Dr $65,073.00  

          To Cash   $60,240.00

          To Discount on bond payable   $4,833.00

 (To record interest expense and discount amortization)

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