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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

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

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