Answer:
Wayne, Inc.
1. The stated interest rate for this bond issue is:
= 8%.
2. The market interest rate for this bond issue is:
= 9%.
3. The selling price of the bonds as a percentage of the face value is 97.5% ($3,900,000/$4,000,000 * 100)
4. Journal Entry to record the sale of the bond issue on December 31, 2020:
December 31, 2020:
Debit Cash $3,900,000
Debit Bonds Discounts $100,000
Credit Bonds Payable $4,000,000
To record the bonds proceeds, discounts, and liability.
5. December 31, 2021:
Debit Bonds Interest Expense $351,000
Credit Bonds Amortization $31,000
Credit Cash $320,000
To record the first payment of interest and amortization.
Explanation:
a) Data and Calculations:
Face value of bonds = $4,000,000
Bonds price = $3,900,000
Discount = $100,000
December 31, 2021:
Interest expense = $351,000
Market interest rate = $351,000/$3,900,000 * 100 = 9%
Cash payment = $320,000
Coupon interest rate = $320,000/$4,000,000 * 100 = 8%
