Kershaw Electric sold $6 million of 10%, 10-year bonds on January 1, 2021. The bonds were dated

Question:

Kershaw Electric sold $6 million of 10%, 10-year bonds on January 1, 2021. The bonds were dated January 1, 2021, and paid interest on January 1. The bonds were sold at 98.

Instructions

a. Prepare the journal entry to record the issuance of the bonds on January 1, 2021.

b. Assume that at December 31, 2021, $8,000 of the discount has been amortized. Show the balance sheet presentation of the non-current liability at December 31, 2021.

c. Assume that on January 1, 2023, when the bonds’ amortized cost was $5,896,000, the company redeemed the bonds at 102. Record the redemption of the bonds assuming that interest for the period had already been paid.

Taking It Further

How will the total cost of borrowing be affected if a bond is sold

(a) At a discount

(b) At a premium?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...

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