Answer:
cash 96,535 debit
discount on BP 3,465 debit
Bonds Payable 100,000 credit
Explanation:
We need to determinate the price at which the bonds were issued:
Which is the present value of the coupon payment and maturity
[tex]C \times \frac{1-(1+r)^{-time} }{rate} = PV\\[/tex]
Coupon payment: 100,000 x 10% / 2 = 5,000
time 4 (2 years x 2 payment per year)
rate 0.06 (12% annual / 2 = 6% semiannual)
[tex]5000 \times \frac{1-(1+0.06)^{-4} }{0.06} = PV\\[/tex]
PV $17,325.5281
[tex]\frac{Maturity}{(1 + rate)^{time} } = PV[/tex]
Maturity (face value) $100,000.00
time 4.00
rate 0.06
[tex]\frac{100000}{(1 + 0.06)^{4} } = PV[/tex]
PV 79,209.37
PV c $17,325.5281
PV m $79,209.3663
Total $96,534.8944
As the bonds are issued below face value there is a discount:
100,000 - 96,535 = 3,465
the entry will recognize the cash procceds and the creation of a liaiblity
we will also use an auxiliar account for the discount on the bonds
