Answer:
western
Cash 32,300,000 debit
discount on bonds payable 700,000 debit
bonds payable 33,000,000 credit
interest expense 2,096,666.67 debit
discount on bonds payable 116,666.67 credit
cash 1,980,000 credit
(repeat for the 6 interest payment)
at maturity:
bonds payable 33,000,000 debit
cash 33,000,000 credit
stillworth
Investment-Debt securities 32,300 debit
Discount on Debt securities 700 debit
cash 33,000 credit
interest expense 2,096.67 debit
discount on bonds payable 116.67 credit
cash 1,980 credit
(repeat for the 6 interest payment)
at maturity:
cash 33,000 debit
Investment-Debt securities 33,000 credit
Explanation:
western:
we subtract the face value from the proceeds to determiante how much is the discount
stillworth
As they were acquired as long erm investment we will record using an amortization method as they will be held until maturity. If not, we will simply use face value
<u><em>amortization of the bonds:</em></u>
The total payment are 6
so we divide the 700,000 among 6 to know the amortization per payment:
700,000/6 = 116,666.67
cash outlay:
33,000,000 x 0.12/2 = 1,980,000
interest expense will be the sum of both concepts:
1,980,000 + 116,666.67 = 2,096,666.67
for the 700 it will be:
700/6 = 116.67
then 33,000 x 0.06 = 1,980
1,980 + 116.67 = 2,096.67 interest expense.
