On January 1, 2016, the Diamond Association issued bonds with a face value of $300,000, a stated

Question:

On January 1, 2016, the Diamond Association issued bonds with a face value of $300,000, a stated rate of interest of 6 percent, and a 10-year term to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 7 percent at the time the bonds were issued. The bonds sold for $278,932. Diamond used the effective interest rate method to amortize the bond discount.

Required

a. Determine the amount of the discount on the day of issue.

b. Determine the amount of interest expense recognized on December 31, 2016.

c. Determine the carrying value of the bond liability on December 31, 2016.

d. Provide the general journal entry necessary to record the December 31, 2016, interest expense.

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...