On January 1, 2015, Crabb & Co. issued 10-year
Question # 00559119
Posted By:
Updated on: 07/10/2017 06:57 AM Due on: 07/10/2017
Accounting for Bonds Payable
On January 1, 2015, Crabb & Co. issued 10-year bonds with a total face value of $500,000. The bond requires
annual interest payments on December 31 at a stated rate of 6%. Bonds with similar features are discounted in
the market at 8%.
Were the bonds issued at a discount or a premium?
How much cash will Crabb & Co. receive from issuing the bond? How does this transaction affect Crabb & Co.’s balance sheet on the date of the issuance? Cash DATE ACCOUNT NAME Discount on Bonds
Payable Bonds Payable DEBIT BALANCE
SHEET CREDIT
A = 01/01/1
5 What is the amount of cash interest paid by Crabb & Co. in 2015? What is the amount of interest expense on the income statement in 2015?
What is the carrying value of the bond on December 31, 2015? L + INCOME
STMT
E R - E Prepare the entry at 12/31/15 to record interest expense, cash paid, and discount amortization. DATE ACCOUNT NAME DEBIT BALANCE
SHEET CREDIT
A = L + INCOME
STMT
E 12/31/1
5 Statement of Cash Flows
Issuance of bond (F)
Paid interest (O) Income Statement
Interest expense Balance Sheet
Cash
Change in Total Assets
Bonds payable, net of
discount
Retained earnings
Change in Total
Liabilities & Equity 2015 2016 R - E
On January 1, 2015, Crabb & Co. issued 10-year bonds with a total face value of $500,000. The bond requires
annual interest payments on December 31 at a stated rate of 6%. Bonds with similar features are discounted in
the market at 8%.
Were the bonds issued at a discount or a premium?
How much cash will Crabb & Co. receive from issuing the bond? How does this transaction affect Crabb & Co.’s balance sheet on the date of the issuance? Cash DATE ACCOUNT NAME Discount on Bonds
Payable Bonds Payable DEBIT BALANCE
SHEET CREDIT
A = 01/01/1
5 What is the amount of cash interest paid by Crabb & Co. in 2015? What is the amount of interest expense on the income statement in 2015?
What is the carrying value of the bond on December 31, 2015? L + INCOME
STMT
E R - E Prepare the entry at 12/31/15 to record interest expense, cash paid, and discount amortization. DATE ACCOUNT NAME DEBIT BALANCE
SHEET CREDIT
A = L + INCOME
STMT
E 12/31/1
5 Statement of Cash Flows
Issuance of bond (F)
Paid interest (O) Income Statement
Interest expense Balance Sheet
Cash
Change in Total Assets
Bonds payable, net of
discount
Retained earnings
Change in Total
Liabilities & Equity 2015 2016 R - E
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Rating:
/5
Solution: On January 1, 2015, Crabb & Co. issued 10-year