On January 1, 2014, The Mason Golf Course issued $600,000 of 4-year, 6% bonds payable. The market rate of interest for bonds of similar risk and maturity was 8%. The bonds pay interest each June 30 and December 31, and any discount or premium is amortized using the effective-interest method.

Record the following transactions:

a) Issuance of the bonds payable on January 1, 2014. Explanations are not required.

b) Payment of interest (and amortization of discount or premium if any) on June 30, 2014. Explanations are not required.

c) Payment of interest (and amortization of discount or premium if any) on December 31, 2014.Explanations are not required.

2. At what amount will The Mason Golf Course report the bonds on its balance sheet at December 31, 2014?

Step 1

Determine the amount at which the bond will sell

Maturity value of the bond x present value factor of 1, where i = 4%, n = 8 periods

Semi-annual interest payments X present value of an annuity, where I = 4%, n = 8 payments

Selling price of the bonds =

Step 2

Determine interest expense for June 30 and December 31, 2014

Date	Cash paid in interest	Interest expense	Amount of discount amortized	Carrying value of bond
January 1
June 30
December 31

Step 3

Journal Entries

Date	Account title	Debit	Credit
January 1
June 30
Dec. 31

Reporting of bond payable on balance sheet:

Long-term liabilities:

Bond payable

Less: Discount on bond payable

Bond payable (net)