Question

Park Corporation is planning to issue bonds with a face value of $2,600,000 and a coupon rate of 10 percent. The bonds mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Park uses the effective-interest amortization method and also uses a premium account. Assume an annual market rate of interest of 8.5 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.) Required: 1. Prepare the journal entry to record the issuance of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Answer is complete but not entirely correct. Credit No Date General Journal Debit 3,489,975X January 01 1 Cash 889,975X 2,600,00 Premium on bonds payable Bonds payable 2. Prepare the journal entry to record the interest payment on June 30 of this year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answer to whole dollars.) X Answer is complete but not entirely correct. Debit Credit No Date General Journal 126,375X 3,625X Interest expense 1 June 30 Premium on bonds payable 130,000 Cash 3. How will Park present its bonds on its June 30 balance sheet? (Round your final answer to whole dollars.) XAnswer is complete but not entirely correct PARK CORPORATION Balance Sheet (Partial) At June 30 Long-term liabilities $ 3,489,975 Bonds payable Unamortized (886,350 X premium $ 2,603,625

Answer 1

Solution 1:

Computation of bond price
Table values are based on:
n=	20
i=	4.25%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.43499	$2,600,000.00	$1,130,974
Interest (Annuity)	13.29437	$130,000.00	$1,728,268
Cash Proceed from sale of bond			$2,859,242

Journal Entries - Park Corporation
Date	Particulars	Debit	Credit
1-Jan	Cash Dr	$2,859,242.00
	To Bond Payable		$2,600,000.00
	To Premium on Bond Payable		$259,242.00
	(To record issue of bond at Premium)

Solution 2:

Journal Entries - Park Corporation
Date	Particulars	Debit	Credit
30-Jun	Interest expense Dr ($2,859,242*8.50%*6/12)	$121,518.00
	Premium on bond payable Dr	$8,482.00
	To Cash		$130,000.00
	(To record interest expense and premium amortization)

Solution 3:

Park Corporation
Balance Sheet (Partial)
As of June 30
Particulars		Amount
Long term liabilities:
Bond Payable	$2,600,000.00
Add: Unamortized premium	$250,760.00
Net Bond Liability		$2,850,760.00