Bond Review Problems –
Question 1: Bonds Issued at Par Value
Assume that Durham Corporation issued $100,000, 10-year, 9%, bonds dated February 1, 2017
at $100,000 (100% of face value). Interest on bonds is payable semi-annually on August 1 and
February 1. The bonds are reported in the long-term section of the balance sheet since the
maturity date is more than one year away.
Record the following entries:
a) The entry to record the issue of the bonds on February 1, 2017
b) The entry to record the first semi-annual interest payment on August 1, 2017 Date General Journal
Account Titles and Explanation Debit Credit Assume that the bonds were issued on May 1, 2017 instead of February 1, 2017. The
purchasers of the bonds pay the purchase price plus any accrued interest on the bonds. The
purchasers will receive the full 6 months’ interest on August 1, 2017.
Record the following entries:
a) The entry to record the sale of the bonds on May 1, 2017, plus accrued interest
b) The entry to record the first interest payment on August 1, 2017 General Journal
Date Account Titles and Explanation Question 2: Bonds issued at a Discount Debit Credit On February 1, 2017, Fireswirl Corp. issued a $900,000, 5% two-year bond. Interest is
payable semi-annually each August 1, and February 1.
a) Calculate the bond issue price assuming a market interest rate of 6% on the date of
issue.
b) Using the effective interest method, prepare an amortization schedule for the term of the
bond.
c) Record the entry for the issuance of the bond on February 1, the adjusting entry to
accrue bond interest and related amortization on March 31, 2017, Fireswirl Corp’s yearend, and the payment of interest on August 1, 2017. Period
ending Date Cash
interest paid Period
interest
expense Discount/
Premium
Amortizatio
n General Journal
Account Titles and Explanation Unamortized
discount/
premium Carrying
value Debit Credit Question 3: Bonds issued at a Premium
On March 31, 2017, Fireswirl Corp. issued a $900,000, 5% two-year bond. Interest is
payable semi-annually each September 30, and March 31.
a) Calculate the bond issue price assuming a market interest rate of 4.5% on the date of
issue.
b) Using the effective interest method, prepare an amortization schedule for the term of the
bond.
c) Record the entry for the issuance of the bond on March 31, and the first payment of
interest on September 30, 2017. Period
ending Date Cash
interest paid Period
interest
expense Discount/
Unamortized
Premium
discount/
Amortization
premium General Journal
Account Titles and Explanation Carrying
value Debit Credit Question 4: Redemption of bonds
Michelle Corporation calls in $250,000 (par value) bonds with a carrying value of $247,950.
Michelle is required to redeem the bonds at the par value. Record the entry to retire the bonds. Date General Journal
Account Titles and Explanation Debit Credit
ScholarMatic: Explanation & Answer
Your ready answer from a verified tutor is just a click away for as little as $14.99
Click Order Now to get 100% Original Answer Customized to your instructions!
