1

Issue Date January 1, 2021 Principal

Maturity Date December 31, 2021 Interest
Face Amount 2,000,000 Total
Issue Price 1,903,927
Term 3 Date Interest Paid
Nominal Rate 10% 1/1/2021
Effective Rate 12% 12/31/21 200,000
Interest payment every yearend 200,000 12/31/22 200,000
12/31/23 200,000
Journal Entries
1/1/2021 Cash 1,903,927
Discount on Bonds Payable 96,073
Bond Payable 2,000,000

12/31/2021 Interest Expense 228,471

Cash 200,000
Discount on Bonds Payable 28,471

12/31/2022 Interest Expense 231,888

Cash 200,000
Discount on Bonds Payable 31,888

12/31/2023 Interest Expense 235,714

Cash 200,000
Discount on Bonds Payable 35,714

Bonds Payable 2,000,000

Cash 2,000,000

2. Issuance at a premium

Issue Date January 1, 2021

Maturity Date December 31, 2021 Principal
Face Amount 2,000,000 Interest
Issue Price 2,206,168 Total
Transaction Cost 106,694
2,099,474 Date Interest Paid
Term 3 1/1/2021
Nominal Rate 12% 12/31/21 240,000
Effective Rate 10% 12/31/22 240,000
Interest payment every yearend 240,000 12/31/23 240,000

1/1/2021 Cash 2,206,168

Premium on Bonds Payable 206,168
Bonds Payable 2,000,000
 Premium on Bonds Payable 106,694
Cash 106,694

12/31/2021 Interest Expense 209,947

Premium on Bonds Payable 30,053
Cash 240,000

12/31/2022 Interest Expense 206,942

Premium on Bonds Payable 33,058
Cash 240,000

12/31/23 Interest Expense 203,636

Premium on Bonds Payable 36,364
Cash 240,000

Bonds Payable 2,000,000

Cash 2,000,000
 PV
(1+i)^-n 1,423,560
((1-(1+i)^-n)/i) 480,366
1,903,927

Interest Expense Amortization Present Value

1,903,927
228,471 28,471 1,932,398
231,888 31,888 1,964,286
235,714 35,714 2,000,000

Bonds Payable 2,000,000

Discount on Bonds Payable 67,602
Carrying Amount 1,932,398

Bonds Payable 2,000,000

Discount on Bonds Payable 35,714
Carrying Amount 1,964,286

PV
(1+i)^-n 1,502,630
((1-(1+i)^-n)/i) 596,844
2,099,474

Interest Expense Amortization Present Value

2,099,474
209,947 30,053 2,069,421
206,942 33,058 2,036,364
203,636 36,364 2,000,000