On January 1, 2013, O'Mallan Inc. issued 10-year bonds with a total face value of $500,000. The bond requires annual interest payments on December 31 at a stated rate of 6%. Bonds with similar features are discounted in the market at 8%.

Were the bonds issued at a discount or a premium?

How much cash will O'Mallan Inc. receive from issuing the bond?

How does this transaction affect O'Mallan inc. balance sheet on the date of the issuance?

Cash			Bonds Payable			Discount on Bonds Payable

DATE

ACCOUNT NAME

DEBIT

CREDIT

BALANCE SHEET

INCOME STMT

A

=

L

+

E

R

-

E

01/01/13

What is the amount of cash interest paid by O'Mallan Inc. in 2013?

What is the amount of interest expense on the income statement in 2013?

What is the carrying value of the bond on December 31, 2013?

Prepare the entry at 12/31/13 to record interest expense, cash paid, and discount amortization.

DATE

ACCOUNT NAME

DEBIT

CREDIT

BALANCE SHEET

INCOME STMT

A

=

L

+

E

R

-

E

12/31/13

Statement of Cash Flows			2013		2014
Issuance of bond (F)
Paid interest (O)

Income Statement
Interest expense

Balance Sheet
Cash
Change in Total Assets
Bonds payable, net of discount
Retained earnings
Change in Total Liabilities & Equity