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Chapter 12: Q12RQ (page 654)

What type of account is Discount on Bonds Payable? What is its average balance? Is it added to or subtracted from the Bonds Payable charge to determine the carrying amount?

Short Answer

Expert verified

Discount on bonds payable is contra liability account. The difference between the face value and the selling price of the bonds is known as the discount on bonds payable. It is added to bonds payable.

Step by step solution

01

Definition of carrying amount

The carrying amount refers the value at which bonds are shown in books of accounts.

02

Discount on bonds payable

Discount on bonds payable is a contra liability account. Discount on payable is added to the bonds payable to determine the carrying amount of bonds to bring the carrying value of bond equal to par value. The discount amortize periodically added to the bonds payable balance.

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Most popular questions from this chapter

Why would a company choose to issue bonds instead of issuing stock?

When does a premium on bonds payable occur?

Journalizing bond issuance and interest payments

On January 1, 2018, Roberts Unlimited issues 8%, 20-year bonds payable with a

face value of $240,000. The bonds are issued at 104 and pay interest on June 30 and

December 31.

Requirements

1. Journalize the issuance of the bonds on January 1, 2018.

2. Journalize the semiannual interest payment and amortization of bond premium on

June 30, 2018.

3. Journalize the semiannual interest payment and amortization of bond premium on

December 31, 2018.

4. Journalize the retirement of the bond at maturity, assuming the last interest payment

has already been recorded. (Give the date).

Journalizing bond transactions including retirement at maturity

McQueen Company issued a $100,000, 7.5%, 10-year bond payable. Journalize

the following

transactions for McQueen Company, and include an explanation for each

entry:

a. Issuance of the bond payable at face value on January 1, 2018.

b. Payment of semiannual cash interest on July 1, 2018.

c. Payment of the bond payable at maturity, assuming the last interest

payment had

already been recorded. (Give the date.)

Analyzing, journalizing, and reporting bond transactions

Danny’s Hamburgers issued 6%, 10-year bonds payable at 90 on December 31, 2018.

At December 31, 2020, Danny reported the bonds payable as follows:

Long-term Liabilities:

Bonds Payable \( 600,000

Less: Discount on Bonds Payable (48,000) \) 552,000

Danny’s pays semiannual interest each June 30 and December 31.

Requirements

1. Answer the following questions about Danny’s bonds payable:

a. What is the maturity value of the bonds?

b. What is the carrying amount of the bonds at December 31, 2020?

c. What is the semiannual cash interest payment on the bonds?

d. How much interest expense should the company record each year?

2. Record the June 30, 2020, semiannual interest payment and amortization of

discount.
See all solutions

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