Suppose Northern Airlines issued $160,000 of 5%, five-year bonds when the market interest rate is 12%....

 

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Suppose Northern Airlines issued $160,000 of 5%, five-year bonds when the market interest rate is 12%. The market price of the bonds drops, and Southwest receives $118,720 when the bonds are issued. The transaction was recorded as follows: (Click the icon to view the transaction) Norther's journal entries to record interest expense and amortize the bond discount in the first year follows (Click the icon to view the journal entries) At December 31, 2021, Northern's bond accounts appear as follows (Click the icon to view the accounts) What would Northern Airlines' 2021 income statement and year-end balance sheet report for these bonds? Transaction Date 2021 Jan 1 Journal Entry Accounts and Explanation Cash Discount on Bonds Payable Bonds Payable To issue bonds at a discount. Debit 118,720 41,280 Credit 160,000 Journal entries Date 2021 Jul 1 Interest Expense Journal Entry Accounts and Explanation Discount on Bonds Payable Cash To pay semiannual interest and amortize bond discount. Dec 31 Interest Expense Discount on Bonds Payable Interest Payable To accrue semiannual interest and amortize bond discount. Debit 7,123 7,311 Credit 3,123 4,000 3,311 4,000 Accounts Bonds Payable 160,000 Bal Discount on Bonds Payable 41,280 34,846 Bond carrying amount, $125,154 = $160,000-$34,846. 3,123 3,311 Suppose Northern Airlines issued $160,000 of 5%, five-year bonds when the market interest rate is 12%. The market price of the bonds drops, and Southwest receives $118,720 when the bonds are issued. The transaction was recorded as follows: (Click the icon to view the transaction) Norther's journal entries to record interest expense and amortize the bond discount in the first year follows (Click the icon to view the journal entries) At December 31, 2021, Northern's bond accounts appear as follows (Click the icon to view the accounts) What would Northern Airlines' 2021 income statement and year-end balance sheet report for these bonds? Transaction Date 2021 Jan 1 Journal Entry Accounts and Explanation Cash Discount on Bonds Payable Bonds Payable To issue bonds at a discount. Debit 118,720 41,280 Credit 160,000 Journal entries Date 2021 Jul 1 Interest Expense Journal Entry Accounts and Explanation Discount on Bonds Payable Cash To pay semiannual interest and amortize bond discount. Dec 31 Interest Expense Discount on Bonds Payable Interest Payable To accrue semiannual interest and amortize bond discount. Debit 7,123 7,311 Credit 3,123 4,000 3,311 4,000 Accounts Bonds Payable 160,000 Bal Discount on Bonds Payable 41,280 34,846 Bond carrying amount, $125,154 = $160,000-$34,846. 3,123 3,311