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Accounting for Bonds

For your main Discussion post, share your understanding of bonds as a form of financing a corporation. Discuss how the price of a bond is determined and provide an example of each of the following:

• A bond issued at a premium,

• A bond issued at par,

• A bond issued at a discount.

Additionally, provide the journal entry that would be made to record each of your bond examples as well as the first journal entry that would be made to amortize each of the bond’s premium and discount. What would be the Net Bond Value after the first amortization entry for each of your example bonds? In your main post, also comment on the circumstances upon which a bond may be callable and when a bond may be convertible.

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Lelia Lubowitz
Lelia LubowitzLv2
28 Sep 2019

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Xonic Corporation issued 7.6 million of 20 year, 8 percent bonds on April 1, 2018, at 102. Interest is due on March 31 and September 30 of each year, and all of the bonds in the issue mature on March 31, 2038. Xonics fiscal year ends on decemer 31.

a-c. Record the issuance of the bonds and entries after the issue. (If no entry is required for a transaction/event, select "No Journal Entry Required' in the first account field. Enter your answers in dollars.)

A. Record the issuance of bonds

B.Record the bond interest and amortize bond premium.

C.Record the final interest payment and amortize bond premium.

D.Record the retirement of the bonds.

​Step by Step solution please.

On January 1, Year 1, Acorn Financial Corp. issued 850convertible bonds. Each $1,000 face value bond is convertible into5 shares of common stock. The bonds have a 10 year term to maturityand pay interest semiannually. Acorn's common stock has a par valueof $20.00 per share. The bonds have a stated interest rate of 4%and pay interest semiannually. The convertible bonds were sold for$875,500. Bond issue costs of $50,000 will be subtracted from thebond sale proceeds to be received by Acorn. The bonds were sold toyield a market interest rate of 3%. Acorn will use the effectiveinterest method to amortize the bond discount and/or premium. Roundall amounts to the nearest dollar.
1.Record the journal entry for the issuance of the convertiblebonds on January 1, Year 1.

2.Record the journal entries on June 30, Year 1 to recognizeinterest expense and the amortization of the bond issue cost forthe first six months of Year

On August 1, 2017, Smith Inc. sold 1000, 6% bonds having a maturity value of $1,000 each. The bonds were sold at 98. Bond issue costs of $60,000 were incurred. The bonds are dated August 1, 2017 and mature on August 1, 2021, with interest payable on August 1 and February 1 of each year. Smith uses the amortized cost method with using the effective interest method to amortize the bond premium or discount. Smith prepares financial statements annually at December 31.

Required – Show ALL calculations

(a)The effective interest rate resulting from this transaction is 8.396%. Prove this using the RATE function in Excel

(b)Prepare the journal entry at the date of issue of the bonds.

(c)Prepare a bond amortization schedule for the bond through to its maturity date of August 1, 2021.

(d)Prepare all other required journal entries relating to the bond for all of 2017 and Feb 1, 2018.

(e)On Feb 2, 2019, the all bonds were repurchased from the Bondholders by Smith at the callable provision of 101 in the bond issuance and retired. Prepare the journal entry to record the repurchase and retirement of these bonds.

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