Impact of a Discount

Berol Corporation sold 20-year bonds on January 1, 2016. The face value of the bonds was $100,000, and they carry a 9% stated rate of interest, which is paid on December 31 of every year. Berol received $93,080 in return for the issuance of the bonds when the market rate was 10%. Any premium or discount is amortized using the effective interest method.

Required:

1.Prepare the journal entry to record the sale of the bonds on January 1, 2016. How does this entry affect the accounting equation?

Prepare proper balance sheet presentation for January 1, 2016.

Berol CorporationBalance Sheet (Partial)January 1, 2016

Bonds payable$?

Less: Discount on bonds payable$?

2.Prepare the journal entry to record interest expense on December 31, 2016. How does this entry affect the accounting equation?

Prepare proper balance sheet presentation for December 31, 2016.

Berol CorporationBalance Sheet (Partial)December 31, 2016

Bonds payable$?

Less: Discount on bonds payable$?