Park Corporation is planning to issue bonds with a face value of $680,000 and a coupon rate of 7.5 percent. The bonds mature in 8 years and pay interest semiannually every June 30 and December 31.

Park Corporation is planning to issue bonds with a face value of $680,000 and a coupon rate of 7.5 percent. The bonds mature in 8 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 discount 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. Round your final answer to whole dollars.)  

Required:

1. Prepare the journal entry to record the issuance of the bonds.

 

2. Prepare the journal entry to record the interest payment on June 30 of this year.

3. What bond payable amount will Park report on its June 30 balance sheet?

 

  

Here

Explanation:

1.

Present value:

$680,000 × 0.51379	=		349,377
$25,500* × 11.44031	=		291,728
Issue price	=	$	641,105**

*Interest: $680,000 × .075 × 1/2 = $25,500

**Using Excel or a financial calculator results in a present value of $641,105 (rounded).

2.

Interest expense = ($641,105 × .085 × 1/2)

3.

This is the book value of the bond payable. It is computed in one of two ways: (1) By subtracting the unamortized discount ($38,895 − $1,747) from the face value of the bonds ($680,000), or (2) by adding the amount of the discount amortized on June 30 ($1,747) to the book value of the bond at the beginning of the period ($641,105).