On January 1, 2021, Ponasis Corporation issued $2.5-million, 10-year bonds. The bonds pay semi-annual interest on July 1 and January 1, and Ponasis has a December 31 year end. Presented below is a partial amortization schedule.

Instructions

a. Were the bonds issued at a discount or a premium?

b. What is the face value of the bonds?

c. What is the contractual rate of interest?

d. Fill in the missing amounts for items [1] through [5].

e. What was the market interest rate when the bonds were issued?

f. Record the issue of the bonds on January 1, 2021.

g. Record the interest payment on July 1, 2021.

h. Record the accrual of interest on December 31, 2021.

i. What amounts would be reported as current and non-current in the liabilities section of Ponasis?s December 31, 2021, balance sheet?

Taking It Further

Why would Ponasis?s board of directors not have set the contractual interest rate at the market interest rate on the date of issue when it authorized the bond issue?

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Semi-Annual Interest Period Interest Payment Interest Expense Amortization Amortized Cost Jan. 1, 2021 July 1, 2021 Jan. 1, 2022 July 1, 2022 Jan. 1, 2023 July 1, 2023 Jan. 1, 2024 Bond $[1] 2,695,981 2,687,401 2,678,649 [5] 2,660,616 2,651,328 $8,412 8,580 8,752 $62,500 [3] 62,500 62,500 62,500 62,500 $[2] 53,920 53,748 53,573 53,394 53,212 [4] 9,106 9,288