Asked Dec 7, 2019
On January 1, 2019, Canglon, Inc., issues 10%, 5-year bonds with a face value of $150,000 when the effective rate is 12%. Interest is to be paid semiannually on June 30 and December 31. Assume Canglon uses the effective interest method to amortize the discount.
  Prepare the journal entry to record the first interest payment on June 30, 2019.

Expert Answer

1 Rating
Step 1

First of all, we have the below information-

Face value of bonds= $150,000

Time of the bonds= 5 years 

Interest paid semi annually = therefore, 5x 2 times a year= 10 payments

Interest rate of bonds= 10%, therefore 5%  semi annually.

Effective rate or market rate of bonds= 12% , therefore 6%  semi annually.

Step 2

We shall calculate the Actual interest to be paid = 150,000 x 5% = 7500 (10 payments after every 6mnths)

Now, we shall calculate the present value of bonds and interest using the market/effective rate of 6%

We can use the present value table for $1 for calculation of bonds face value & Present value of ordinary annuity table for calculation of interest on bonds with effective rate-

Present value of Bonds of face value $150000 = 150000 x 0.5584= $83,761

Present value of interest of $ 45000 = 7500 x 7.3601= $55,200

Total present value of bonds= $ 83760 + $ 55200= $ 138961

(please note present values have been picked up from the present value and annuity tables where rate = 6% and n= 10 years 

Step 3

Using the figures arrived in step 2,  we shall now prepare the attached table. Please note- 

1. Book value in Column G & Bond discount in column E  is as per calculated in ste...


Image Transcriptionclose

Interest payment stated 5%x face vale Previous book value Credit balance in Accounts - Bonds Debit balance in the Book value of bonds- Interest expense market 6% x F-E 150000 150000 Amortization of bond discount C-B account - bond discount payable account Date 11039 10202 138961 Jun 30-2019 8338 838 7500 139798


Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in



Related Accounting Q&A

Find answers to questions asked by student like you
Show more Q&A

Q: There are two common causes of business and accounting fraud:• A failure of individual character• A ...

A: Internal control: Internal control is a method that avoids material errors in the preparation of fin...


Q: The unadjusted trial balance of La Mesa Laundry at August 31, 2019, the end of the fiscal year, foll...

A: 1, 3, and 6: Prepare the T-accounts.T-Accounts: T-accounts are referred as T-account because its for...


Q: On July 1, 20Y1, Danzer Industries Inc. issued $35,400,000 of 10-year, 10% bonds at a market (effect...

A: Hello. Since your question has multiple sub-parts, we will solve the first three sub-parts for you. ...


Q: The following accounts appear in an adjusted trial balance of Waterloo Consulting. Indicate whether ...

A: Assets which can be converted into cash or cash equivalent within 12 months from the balance sheet a...


Q: Walman Corp. manufactures products X, Y, and Z from a joint production process. Joint costs are allo...

A: Compute the Product X’s sales value at the split-off point:



A: Horizontal Model StatementThe horizontal model arranges financial statement elements horizontally ac...


Q: The functional currency is ?

A: Functional currency: 


Q: Ayayai Company has an old factory machine that cost $63,000. The machine has accumulated depreciatio...

A: Click to see the answer


Q: Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Bo...

A: Calculation of Net Present Value: