## Answers

**a. Adjusting journal entries if the bond issued at 98:**

Date | Account titles | Dr | Cr |

31-Dec-18 | Expenses for Interest on Bonds Issued A/c | $ 2,693,334.00 | |

Discount-Bonds Payable A/c | $ 26,667.00 | ||

interest on Bonds Payable A/c | $ 2,666,667.00 | ||

(To record interest due on bonds) | |||

1-Mar-19 | interest on Bonds Payable A/c | $ 2,666,667.00 | |

Expenses for Interest on Bonds Issued A/c | $ 1,346,667.00 | ||

Discount-Bonds Payable A/c | $ 13,334.00 | ||

Cash A/c (B.fig) | $ 4,000,000.00 | ||

(To record interest on bonds paid) |

**Working:**

i. Discount amount to be amortized = $80 million * 10% * 4 months/ 20 years = $1.6 million

Discount to be amortized as in Dec 31 = $1.60 million * 4 months / 20 years = $26,667

ii. Interest payable = $80 million * 10% * 4/ 12 =$2,666,667

iii. Discount on bonds payable on 1 march 2019 = $1.6 million * 2 months /20 years = $13,334

iv.

**b.**

**Net bond liability computation as on Dec 31,2019 if bond issued at $98:**

Total discount amortization = $1.60 million

Discount amortization as on Dec 31,2019 = $1.6 million * (12+4 months) / 20 years = $106,667

Net discount amortization = $1.6 million - $106,667 = $1,493,333

Hence, Net bond liability = $80,000,000 -$1,493,333 = **$78,506,667**