Bonds

Question 1

On January 1, year 1, Boston Group issued $100,000 par value, 5% five-year bonds when the market rate of interest was 8%. Interest is payable annually on December 31. The following present value information is available:
Present value of $1 (n = 5) 0.78353 @ 5% or 0.68058 @ 8%
Present value of an ordinary annuity (n = 5) 4.32948 @ 5% or 3.99271 @ 8%

What amount is the value of net bonds payable at the end of year 1?

Answer 1

Bond Price:
100,000(.68058) + .05($100,000)(3.99271) = $88,022
Interest:
08($88,022) = $7,042

J/E:

Issuance:

Dr cash. 88,022
Dr discount. 11,978
Cr bonds payable 100,000

dr. Interest expense 7,042
cr. Discount 2,042
cr. Cash 5,000

Reporting Liability:
Bonds 88,022 + 2,042= $90,064

Cash. Int. Amt. cv
88,022
5,000. 7,042. 2,042. 90,064