Question

E-Tech Initiatives Limited plans to issue $500,000, 10-year, 4 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 102.

Answer 1

Answer:

E-Tech Initiatives Limited

Partial balance sheet

as on January 2, 2019

Liabilities

Long term Liabilities

Bond Payable ________________ $500,000

Add: Premium on Bond _________ $10,000  

_____________________________________ $510,000

Explanation:

First Calculate the issuance value

Issuance value = $500,000 x 102% = $510,000

The bond is issued on Premium, Now calculate the premium on bond value

Premium on bond = Issuance value - Premium on Bond

Premium on bond = $510,000 - $500,000

Premium on bond = $10,000

The bond payable value of $500,000 and Premium on the bond aer reported in the long term liability section of balance sheet.

Answer 2

The preparation of the bond that should be reported on the balance sheet is presented below:

E-Tech Initiatives Limited

Partial balance sheet

As on January 2, 2019

Liabilities

Long term Liabilities

Bond Payable $500,000

Add: Premium on Bond $10,000  ($510,000 - $500,000)

Carrying value $510,000 ($500,000 * 102%)

In this way, it should be presented.

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