bonds issued at a discount

Question

Carver Inc. issued a bond on January 1,2011, that had a three-year maturity. The bond had a face amount of 100,000 and contract rate of interest of 12% which is paid annually. The bond's market interest rate is 13% and current selling price is 97639. The company uses the straight-line method to amortize the discount or premium on its bonds. 

 

Complete the journal entries for Carver Inc. (the issuer) that record the following: (1) the bond issue on January 1,2011, (2) the annual amortization of the bond discount or premium each year at December 31 combined with the annual interest payments, and (3) the final repayment of bond principle. 

 

Date                        Description              debit credit

2011

Jan 1

Dec 31

 

2012

Dec 31

 

2013

Dec 31

Dec 31

Answer 1

2011

Jan 1       Discription                  Account                        DB              Cr

         Sold bonds at discount      

                                                Cash                           $197,639

                                                Discount on Bonds            $2,361             

                                                     Bonds Payable                          $100,000

2011

 

Dec 31    Paid Interest

                                                 Interest Expense             $12,787

                                                      Cash                                           $12,000

                                                      Discount on Bonds                              $787

 

2012       Paid Interest                  Interest Expense              $12,787

 Dec 31                                                    Cash                                   $12,000

                                                       Discount on Bonds                             $787

 

2013

Dec 31     Retired bonds

                                                   Bonds Payable                 $100,000

                                                   Interest Expense                $12,787

                                                               Cash                                     $112,000

                                                               Discount on bonds                        $787