Question

On January 1, 2020 Rodman Inc issues for cash $100,000 of 8%, five-year bonds with interest payable semiannually. The market rate of interest at the time the bonds are issued is 10%. Assume the bonds sell for $92,278.

A. Is the bond issued at a premium, a discount, or neither?

B. Prepare journal entries for the bond’s issuance, and the first and second semiannual interest payment (3 journal entries required). Assume any premium or discount is amortized on he straight-line basis semiannually.

Answer 1

A.discount bond

B.Placement of bonds at a price equal to par:

Debit settlement account credit Settlements on long-term loans and borrowings - 100 000

Payment of interest for the first half of the year:

Debit Settlements on long-term loans and borrowings credit settlement account - 4 000

Payment of interest for the second half of the year:

Debit Settlements on long-term loans and borrowings credit settlement account - 4 000