Part A.

You are thinking of repaying all amounts outstanding to your parents. Recall that you borrowed $3,200 on November 16, 2020, from your parents. Interest on the note is 6% per year, and the note plus interest was to be repaid in 24 months. Recall that a monthly adjusting journal entry was prepared for the months of November 2020 (1/2 month), December 2020, and January 2021.

Required part A

1. Calculate the interest payable that was accrued and recorded to July 31, 2021, assuming monthly adjusting entries were made.
2. Prepare the journal entry at August 31, 2021, to record one months accrued interest.
3. You repay your parents on September 15, 202110 months after they extended the loan to your business. Prepare the journal entry for the loan repayment.

Borrowed Capital: $3200

Interest per year: 6%

November 16, 2020 to July 31, 2021: 8.5 months

6% of 3200 * 8.5/12= $136

Date	Account	Debit	Credit
08/31/2021	Interest Expense	$16.00
	Interest Payable		$16.00
	One months accrued interest
09/15/2021	Account Payable	$3200.00
	Interest Payable	$152.00
	Interest Expense	$8.00
	Cash		$3360.00
	Loan repayment

Part B

As an alternative, you are contemplating to incorporate and issue a bond to raise the capital instead of borrowing from the bank.

Required part B

1. Is there an advantage to issuing bonds rather than borrowing money from the bank?
2. Suppose you decide to go this route and you issue a $130,000, 9%, 5-year bonds for $115,375 when the market rate is 12%. The bonds pay interest semi-annually. Prepare an amortization table for the first three payments.
3. The discount is amortized using the straight-line method. Prepare journal entries for the following transactions.
   1. July 1, 2021: entry to record issuing the bonds.
   2. Dec 31, 2021: entry to record payment of interest to bondholders.
   3. Dec 31, 2021: entry to record amortization of discount.