On january 1, 2019, amazon issues $100,000 in bonds having a stated rate of 10%. the bonds mature in 2 years (dec. 31, 2020) and interest is paid each june 30 and december 31. the market rate is 12%.

cash                   96,535 debit

discount on BP    3,465 debit

          Bonds Payable          100,000 credit

Explanation:

We need to determinate the price at which the bonds were issued:

Which is the present value of the coupon payment and maturity

Coupon payment: 100,000 x 10% / 2 =5,000

time4  (2 years x 2 payment per year)

rate0.06  (12% annual / 2 = 6% semiannual)

PV$17,325.5281  

Maturity (face value)   $100,000.00  

time   4.00  

rate  0.06

PV   79,209.37  

PV c$17,325.5281  

PV m  $79,209.3663  

Total$96,534.8944  

As the bonds are issued below face value there is a discount:

100,000 - 96,535 = 3,465

the entry will recognize the cash procceds and the creation of a liaiblity

we will also use an auxiliar account for the discount on the bonds

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