Reporting Financial Statement Effects of Bond Transactions

On January 1, 2013, McKeown, Inc., issued $250,000 of 8%, 9-year bonds for $220,776, yielding a market (yield) rate of 10%. Semiannual interest is payable on June 30 and December 31 of each year.

Required

a. Show computations to confirm the bond issue price.

(Use a calculator or Excel for your calculations. Round your answers to the nearest dollar.)

Present value of principal repayment	$ Answer
Present value of interest payments	$ Answer
Selling price of bonds	$ Answer

b. Prepare journal entries to record the bond issuance, semiannual interest payment and discount amortization on June 30, 2013, and semiannual interest payment and discount amortization on December 31, 2013. Use the effective interest rate.

(Round your answers to the nearest dollar.)

General Journal
Date	Description	Debit	Credit
01/01/13	Cash	Answer	Answer
	Answer CashBond premiumBond discountInterest expenseBonds payable	Answer	Answer
	Answer Bond discountBond premiumCashInterest expenseBonds payable	Answer	Answer
6/30/13	Answer Interest expenseCashBond premiumBonds payableBond discount	Answer	Answer
	Answer Bond premiumInterest expenseBond discountBonds payableCash	Answer	Answer
	Cash	Answer	Answer
12/31/13	Answer CashBond discountInterest expenseBonds payableBond premium	Answer	Answer
	Answer Bonds payableInterest expenseBond premiumCashBond discount	Answer	Answer
	Cash	Answer	Answer

c. Post the journal entries from part b to their respective T-accounts.

Cash (A)
01/01/13	Answer	Answer
06/30/13	Answer	Answer
12/31/13	Answer	Answer

Bonds Payable (L)
01/01/13	Answer	Answer
06/30/13	Answer	Answer
12/31/13	Answer	Answer

Interest Expense (E)
01/01/13	Answer	Answer
06/30/13	Answer	Answer
12/31/13	Answer	Answer

Bond Discount (XL)
01/01/13	Answer	Answer
06/30/13	Answer	Answer
12/31/13	Answer	Answer

d. Record each of the transactions from part b in the financial statement effects template.

Balance Sheet
Transaction	Cash Asset	+	Noncash Assets	=	Liabilities	-	Contra-Liabilities	+	Contrib. Capital	+	Earned Capital
1/1/13 Issue bonds at a discount	$ Answer	+	$ Answer	=	$ Answer	-	$ Answer	+	$ Answer	+	$ Answer
6/30/13 Interest payment on bonds	Answer	+	Answer	=	Answer	-	$ Answer	+	Answer	+	Answer
12/31/13 Interest payment on bonds	Answer	+	Answer	=	Answer	-	$ Answer	+	Answer	+	Answer

Income Statement
	Revenue	-	Expenses	=	Net Income
	$ Answer	-	$ Answer	=	$ Answer
	Answer	-	Answer	=	Answer
	Answer	-	Answer	=	Answer