Question

On January 1, 2021, Twister Enterprises, a manufacturer of a variety of transportable spin rides, issues $580,000 of 8% bonds, due in 10 years, with interest payable semiannually on June 30 and December 31 each year.
Required:
1. If the market interest rate is 8%, the bonds will issue at $580,000. Record the bond issue on January 1, 2021, and the first two semiannual interest payments on June 30, 2021, and December 31, 2021. 2. If the market interest rate is 9%, the bonds will issue at $542,277. Record the bond issue on January 1, 2021, and the first two semiannual interest payments on June 30, 2021, and December 31, 2021.3. If the market interest rate is 7%, the bonds will issue at $621,216. Record the bond issue on January 1, 2021, and the first two semiannual interest payments on June 30, 2021, and December 31, 2021.

Answer 1

Answer:

cash                 580,000 debit

  note payable            580,000 credit

interest expense 23,200 debit

        Cash                     23,200 credit

--interest payment June 30th 2021--

interest expense 23,200 debit

         Cash                    23,200 credit

--interest payment Dec 31th 2021--

2)

cash                542,277 debit

discount on BP 37,723‬ debit

     bonds payable    580,000 credit

interest expense 24,402.46 debit

       discount on BP         1,202.46 credit

       cash                       23,200.00 credit

--interest payment June 30th 2021--

interest expense 24,456,58 debit

          discount on BP         1,256.58 credit

          cash                        23,200.00 credit

--interest payment Dec 31th 2021--

3)if issued at 7%  then

cash          621,261 debit

     premium on BP      41, 261   debit

     bonds payable    580,000 credit

interest expense  21,744.13 debit

premium on BP      1,455.87 debit

          cash                        23,200.00 credit

--interest payment June 30th 2021--

interest expense  21,693.18 debit

premium on BP      1,506.82 debit

          cash                        23,200.00 credit

--interest payment Dec 31th 2021--

Explanation:

1)

the bond are issued at par thus it matches the amount recieved with the bonds payable liability

580000 x 4% = 23,200

2) if issued at 9%  then

542,277 x 0.045 = 24.402,465‬ interest expense

                              23,200 cash payment

 amortization     1.202,46‬

second payment

(542,277+1,202.46) x 0.045 = 24.456,5757 interest expense

                      cash payment  23,200  

                     amortization         1,256.58‬

3) if issued at 7%  then

621,261 x 0.035 = 21.744,13 interest expense

                              23,200 cash payment

 amortization      1.455,87

second payment

(621,261 - 1,455.87) x 0.035 = 21.693,18 interest expense

                      cash payment  23,200  

                     amortization         1,506.82‬