E-Tech Initiatives Limited plans to issue $450,000, 10-year, 5 percent bonds. Interest is payable annually on December 31. All of the bonds will be issued on January 1, 2019. Show how the bonds would be reported on the January 2, 2019, balance sheet if they are issued at 98. (Deductions should be indicated by a minus sign.)

Question

Maverick Chandler

Business

7 November, 11:22

E-Tech Initiatives Limited plans to issue $450,000, 10-year, 5 percent bonds. Interest is payable annually on December 31. All of the bonds will be issued on January 1, 2019. Show how the bonds would be reported on the January 2, 2019, balance sheet if they are issued at 98. (Deductions should be indicated by a minus sign.)

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Jamar Rangel · Answer 1

The bond will be presented in the Long-term Liabilities part of E-Tech Initiatives Limited's Balance sheet as followed:

Bond Payable $ 450,000

Discount on Bond Payable $ (9,000)

Carrying value $441,000

Explanation:

By issuing bonds, E-Tech Initiatives assumes Liability to its bond holders. Besides, the bond tenor is 10 years, thus it will be present in the long-term liabilities part of the firm's Balance sheet.

The issuing price is: 450,000 x 0.98 = $441,000 as it issues at a discount of 2%. The Bond Payable will be presented at the bond's face value of 450,000 Credit, however, a Discount on Bond Payable of 9,000 Debit should also be included to come up with its actual carrying value of $441,000 credit.