Answers
Requirement 1:
Date | Cash Paid | Interest Expense | Increase in Carrying Value | Carrying Value |
1/1/2021 | $473,852 | |||
12/31/2021 | $31,800 | $33,170 | $1,370 | $475,222 |
12/31/2022 | $31,800 | $33,266 | $1,466 | $476,687 |
Cash paid = $530,000 face value x 6% = $31,800
Interest expense = Preceding carrying value x 7% market rate
Increase in carrying value = Interest expense - Cash paid
Carrying value = Preceding carrying value + Increase in carrying value
Requirement 2:
Date | Account title and explanation | Debit | Credit |
January 01,2012 | Cash | $473,852 | |
Discount on bonds payable | $56,148 | ||
Bonds payable | $530,000 | ||
[To record issuance of bonds] | |||
December 31,2021 | Interest expense | $33,170 | |
Discount on bonds payable | $1,370 | ||
Cash | $31,800 | ||
[To record the first annual interest payment] | |||
December 31,2021 | Interest expense | $33,266 | |
Discount on bonds payable | $1,466 | ||
Cash | $31,800 | ||
[To record the first annual interest payment] |
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