Question
Example #4, On January 1, 2019 a company issues 100 bonds, each for $1,000, for a discount, as the interest rate on the bond (stated/coupon
Example #4, On January 1, 2019 a company issues 100 bonds, each for $1,000, for a discount, as the interest rate on the bond (stated/coupon rate) is 3% and the market rate is 4%. They then used this cash to purchase an automobile for $100,000 cash. The bond is to be paid in at the end of THREE years (December 31, 2021).
Calculate the cash received from issuing bond:
Present value of maturity payment $100,000 $
Present value of interest payment ($100,000*.03=$3,000) $
Present value of cash payments $
- PREPARE THE JOURNAL ENTRIES FOR 2019:
Date | Account Name | Debit | Credit |
1/1/2019 |
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12/31/2019 |
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(Discount balance: 2,775.09-889.00=1,886.09)
- PREPARE THE JOURNAL ENTRIES FOR 2020:
Date | Account Name | Debit | Credit |
12/31/2020 |
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(Discount balance: 1,886.09-924.56=961.53)
- PREPARE THE JOURNAL ENTRIES FOR 2021:
Date | Account Name | Debit | Credit |
12/31/2021 |
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(Discount balance is now zero)
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