Exercise 156 Whitmore Company issued 670000 of 5year 6 bonds

Exercise 15-6 Whitmore Company issued $670,000 of 5-year, 6% bonds at 96 on January 1, 2017. The bonds pay interest annually. Prepare the journal entry to record the issuance of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Cash Discount on Bonds Payable Bonds Payable Debit Credit Compute the total cost of borrowing for these bonds. Total cost of borrowing Prepare the journal entry to record the issuance of the bonds, assuming the bonds were issued at 103. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Cash Bonds Payable Premium on Bonds Payable Debit Credit Compute the total cost of borrowing for these bonds, assuming the bonds were issued at 103. Total cost of borrowings

Solution

Journal Entry to record the issuance of bonds issue of bonds At Discount issue proceeds of bond =$670,000*96/100 =$643,200 Discount in Issue of Bonds = face value of bods - issue proceeds =$670,000 - $643,200 =$26800 date Account & Explanation debit Credit jan1,2017 cash A/c $643,200 Discount on Issue of bonds A/c $26,800           To Bonds payable A/c $670,000 (being bonds issue at Discount has been recorded) issue of bonds At Premium issue proceeds of bond =$670,000*103/100 =$690,100 690100 Premium in Issue of Bonds = issue proceeds - face value of bods =$690,100 - $670,000 =$20100 date Account & Explanation debit Credit jan1,2017 cash A/c $690,100           To Bonds payable A/c $670,000            To premium on issue of Bonds A/c $20,100 (being bonds issue at premium has been recorded) Computation of total Cost of borrowing if the Bonds are issue at $103 Interest paid for 5 years =$670,000*6%*5 years =$201,000 Total cost of Borrowing of Bonds issued at 103 = Total Interest Paid for the period - Premium on issue of bonds =$201,000-$20100 =$180,900