Answer:
discount on bonds payable 18,383,020.48 debit
other comprehensive income 18,383,020.48 credit
--to adjust Bonds at 12/31/2021 market value --
other comprehensive income 4.739.000 debit
discount on bonds payable 4.739.000 credit
--to adjust Bonds at 12/31/2022 market value --
Explanation:
We solve for the book value at year-end using effective rate
<u>First year:</u>
<u>First payment</u>
830,000,000 x 5.5% = 45,650,000
767,557,868 x 6.0% = 46,053,472.08
Amortization 403,472.08
<u>Second Payment</u>
830,000,000 x 5.5% = 45,650,000
(767,557,868 + 403,472.08) x 6.0% = 46,077,680.4
Amortization 427680.4
Carrying value at year-end
767,557,868 + 403,472.08 + 427,680.40 = 768,389,020.48
We need to recognize a deferred gain for the difference between these and the 750,000,000 market value at December 31th
which is $ 18,383,020.48 as these as not been realized it will be part of other comprehensive income
We will increase the discount to adjust the bonds payable account net balance.
<u>Second year:</u>
We repeat the process
<em>First Payment:</em>
830,000,000 x 5.5% = 45,650,000
Interest expense 750,000,000 x 6% = 45,000,000
Amortization 650000
Carrying value 750,000,000 + 650,000 = 750,650,000
<em>Second Payment:</em>
830,000,000 x 5.5% = 45,650,000
750,650,000 x 6% = 45,039,000
Amortization 611000
Carrying Value 750,650,000 + 611,000 = 751,261,000
Wer now compare this with the 756,000,000
as now the debt of the company has increased we are going to decrease the discounttand recognize a deferred loss through other comprehensive income as it wasn't realized
756,000,000 - 751,261,000 = 4.739.000
