Question

1.

Dobbs Company issues 5%, two-year bonds, on December 31, 2019, with a par value of $200,000 and semiannual interest payments. Semiannual Period-End (O) 12/31/2019 (1) 6/30/2020 (2) 12/31/2020 6/30/2021 12/31/2021 Unamortized Discount $12,000 9,000 6,000 3,000 Carrying Value $188,000 191,000 194,000 197,000 200,000 3) (4) Use the above straight-line bond amortization table and prepare journal entries for the following. Required: (a) The issuance of bonds on December 31, 2019 (b) The first through fourth interest payments on each June 30 and December 31. (c) Record the maturity of the bonds on December 31, 2021. Complete this question by entering your answers in the tabs below. Required A Required B Required C The issuance of bonds on December 31, 2019. View transaction list

2.

Answer 1

Answer to Question 1:

Face Value of Bonds = $200,000
Issue Value of Bonds = $188,000

Discount on Bonds = Face Value of Bonds - Issue Value of Bonds
Discount on Bonds = $200,000 - $188,000
Discount on Bonds = $12,000

Time to Maturity = 2 years
Semiannual Period = 4

Semiannual Amortization of Discount = Discount on Bonds / Semiannual Period
Semiannual Amortization of Discount = $12,000 / 4
Semiannual Amortization of Discount = $3,000

Annual Coupon Rate = 5.00%
Semiannual Coupon Rate = 2.50%
Semiannual Coupon = 2.50% * $200,000
Semiannual Coupon = $5,000

Semiannual Interest Expense = Semiannual Coupon + Semiannual Amortization of Discount
Semiannual Interest Expense = $5,000 + $3,000
Semiannual Interest Expense = $8,000

Credit Event a. Debit 188,000 12,000 $ $ 120,000 b. $ 8,000 3,000 5,000 8,000 Date General Journal Dec. 31, 2019 Cash Discount on Bonds Payable Bonds Payable June 30, 2020 Interest Expense Discount on Bonds Payable Cash Dec. 31, 2020 Interest Expense Discount on Bonds Payable Cash June 30, 2020 Interest Expense Discount on Bonds Payable Cash Dec. 31, 2020 Interest Expense Discount on Bonds Payable Cash Dec. 31, 2021 Bonds Payable 3,000 5,000 8,000 $ 3,000 5,000 8,000 3,000 5,000 C. $ 200,000 Cash $ 200,000