On 1 January 2015, Quiet Music Ltd issued 8,000 seven-year bonds with a face value of $100 and coupon rate of 4% per annum. The market rate was 3% on the date that the bonds were issued. The company received $849,843 cash from investors for the bonds.
Using the effective interest rate method, the company’s accountant has prepared the table showing how the bonds change in value over time:
|
Year |
Opening balance (1 Jan) |
Effective Interest (market rate = 3%) |
Interest to be Paid (coupon rate = 4%) |
Decrease in carrying value |
Closing balance (31 Dec) |
|
1* |
$849,843 |
$25,495 |
$32,000 |
-$6,505 |
$843,338 |
|
2 |
$843,338 |
$25,300 |
$32,000 |
-$6,700 |
$836,638 |
|
3 |
$836,638 |
$25,099 |
$32,000 |
-$6,901 |
$829,737 |
|
4 |
$829,737 |
$24,892 |
$32,000 |
-$7,108 |
$822,629 |
|
5 |
$822,629 |
$24,679 |
$32,000 |
-$7,321 |
$815,308 |
|
6 |
$815,308 |
$24,459 |
$32,000 |
-$7,541 |
$807,767 |
|
7** |
$807,767 |
$24,233 |
$32,000 |
-$7,767 |
$800,000 |
* Year 1 is 1 January 2015 to 31 December 2015
** Year 7 is 1 January 2021 to 31 December 2021
On 31 December 2021, interest and the face value of the bonds is paid to investors in cash.
Required:
Using the information provided in the above table, prepare the journal entries that would be recorded on 1 January 2015 and 31 December 2021.
Use the answer template below
Quiet Music Ltd’s General Journal:
|
Date |
Account Names |
Debit |
Credit |
|
1/1/2015 |
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(To record issue of bonds to investors) |
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31/12/2021 |
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(To record bond payment of interest and principal to investors) |
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