Nordic Company issued bonds with the following provisions Nordic Company issued bonds with the...

Question:

Nordic Company issued bonds with the following provisions Nordic Company issued bonds with the following provisions:

Maturity value: $60,000,000.

Interest: 7.9% per annum payable semi-annually each June 30 and December 31.

Terms: Bonds dated January 1, 2017, due five years from that date.

The company's fiscal year ends on December 31. The bonds were sold on January 1, 2017, at a yield of 8%.

1. Compute the issue (sale) price of the bonds. (Round time value factor to 4 decimal places. Round the final answer to the nearest whole dollar.)

2. Prepare the journal entry to record the issuance of the bonds. (Round the final answers to the nearest whole dollar.)

3. Prepare the journal entries at the following dates: June 30, 2017; December 31, 2017; and June 30, 2018. Use the effective-interest method to amortize bond discount or premium. (Round the final answers to the nearest whole dollar.)

4. How much interest expense would be reported on the statement of earnings for 2017? (Round intermediate and final answer to the nearest whole dollar.)

Bonds

Bonds are long term instrument and therefore presented in the balance sheet. Bonds are being issued at face value, above or below face value. If this happens, amortization of either discount or premium in necessary using either straight line method or effective interest method.

Answer and Explanation:

Cash Flow Amount Factor (4% FOR 10 PERIODS) Present Value
Principal 600,000 0.6756 405,336
Interest 23,700 8.1109 192,228
Total 597,564


Account Title Debit Credit
Cash 597,564
Discount on bonds payable 2,436
Bonds payable 600,000


Account Title Debit Credit
Interest Expense 23,903
Discount on bonds payable 203
Cash 23,700
Interest Expense 23,911
Discount on bonds payable 211
Cash 23,700
Interest Expense 23,919
Discount on bonds payable 219
Cash 23,700


The interest expense on 2017 is 47,813

Basis

Date Interest Paid Interest Expense Amortization Book Value
1/1/2017 597,564
6/30/2017 23,700 23,903 203 597,767
12/31/2017 23,700 23,911 211 597,977
6/30/2018 23,700 23,919 219 598,196

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