91Ó°ÊÓ

Bonds represent the money owed by the company to outsiders. They carry a fixed rate of interest, also known as the coupon rate.

Working note 1:

• Bonds of $600,000 will be issued on January 1, 2017, at a discounted price of $559,224.
• Thus, the total amount of discount will be $40,776 ($600,000 - $559,224).

Working note 2:

Calculation of interest paid on 1 July 2017

$$\begin{gathered} \text{Interest} \text{paid}=\$6,00,000×7\%×\frac{6}{12} \\ =\$21,000 \end{gathered}$$

Calculation of interest expense on 1 July 2017

$$\begin{gathered} \text{Interest} \text{expense}=\$559,224×8\%×\frac{6}{12} \\ =\$22,369 \end{gathered}$$

Therefore, the discount on bond payable will be $1,369 ($22,369 - $21,000).

Working note 3:

Calculation of interest paid on 31 December 2017

$$\begin{gathered} \text{Interest} \text{paid}=\$6,00,000×7\%×\frac{6}{12} \\ =\$21,000 \end{gathered}$$

Calculation of interest expense on 31December2017

$$\begin{gathered} \text{Interest} \text{expense}=\$560,593×8\%×\frac{6}{12} \\ =\$22,424 \end{gathered}$$

Therefore, the discount on bond payable will be $1,424 ($22,424 - $21,000).