EX. 14-7EX. 14-16 EX 14-7 Entries for issuing bonds and amortizing premium by straight-line method OBJ. 2, 3Smiley Corporation wholesales repair products to equipment manufacturers. On April 1,Year 1, Smiley Corporation issued $20,000,000 of five-year, 9% bonds at a market (effec-tive) interest rate of 8%, receiving cash of $20,811,010. Interest is payable semiannuallyon April 1 and October 1. Journalize the entries to record the following:a. Issuance of bonds on April 1.b. First interest payment on October 1 and amortization of bond premium for six months,using the straight-line method. The bond premium amortization is combined with thesemiannual interest payment. Round to the nearest dollar.C. Explain why the company was able to issue the bonds for $20,811,010 rather than forthe face amount of $20,000,000.

When a bond is issued at a premium, that means that the bond is sold for an amount greater than the…

Answered: EX 14-7 Entries for issuing bonds and…

Corporate Financial Accounting

14th Edition

ISBN:9781305653535

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter11: Liabilities: Bonds Payable

Section: Chapter Questions

Problem 11.4EX

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Amortize premium by interest method Shunda Corporation wholesales parts to appliance manufacturers. On January 1, Shunda issued 22,000,000 of five-year, 9% bonds at a market (effective) interest rate of 7%, receiving cash of 23,829,684. Interest is payable semiannually. Shundas fiscal year begins on January 1. The company uses the interest method. A. Journalize the entries to record the following: 1. Sale of the bonds. 2. First semiannual interest payment, including amortization of premium. (Round to the nearest dollar.) 3. Second semiannual interest payment, including amortization of premium. (Round to the nearest dollar.) B. Determine the bond interest expense for the first year. C. Explain why the company was able to issue the bonds for 23,829,684 rather than for the face amount of 22,000,000.
Bond discount, entries for bonds payable transactions On July 1, Year 1, Livingston Corporation, a wholesaler of manufacturing equipment, issued 46,000,000 of 20-year, 10% bonds at a market (effective) interest rate of 11%, receiving cash of 42,309,236. Interest on the builds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year. Instructions 1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, Year 1. 2. Journalize the entries to record the following: A. The first semiannual interest payment on December 31, Year 1, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.) B. The interest payment on June 30, Year 2, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.) 3. Determine the total interest expense for Year 1. 4. Will the bond proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of interest? 5. (Appendix 1) Compute the price of 42,309,256 received for the bonds by using the present value tables in Appendix A at the end of the text. (Round to the nearest dollar.)
Bond discount, entries for bonds payable transactions On July 1, Year 1, Danzer Industries Inc. issued 40,000,000 of 10-year, 7% bonds at a market (effective) interest rate of 8%, receiving cash of 37,282,062. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year. Instructions 1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, Year 1. 2. Journalize the entries to record the following: A. The first semiannual interest payment on December 31, Year 1, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.) B. The interest payment on June 30, Year 2, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.) 3. Determine the total interest expense for Year 1. 4. Will the bond proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of interest? 5. (Appendix 1) Compute the price of 37,282,062 received for the bonds by using the present value tables in Appendix A at the end of the text. (Round to the nearest dollar.)

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