Learning Objective 2: Question 2 Robertson Corp. provides pool supplies to community pools in the Midwest. This year, Roberston Corp. issued 2,500 bonds with a $1,000 face value. The nominal rate for each bond is 8%. Required: Prepare the necessary journal entries to record the issuance of these bonds assuming the bonds were issued (a) at par, (b) at 103, and (c) at 96.

Learning Objective 2: Question 2 Robertson Corp. provides pool supplies to community pools in the Midwest. This year, Roberston Corp. issued 2,500 bonds with a $1,000 face value. The nominal rate for each bond is 8%. Required: Prepare the necessary journal entries to record the issuance of these bonds assuming the bonds were issued (a) at par, (b) at 103, and (c) at 96.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter9: Long-term Liabilities

Section: Chapter Questions

Problem 45BE: Brief Exercise Issuance of Long-Term Debt Natalie Corp. provides medical supplies to hospitals...

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(Learning Objectives 1, 6: Issue bonds at a discount; amortize using thestraight-line method; report bonds payable and accrued interest payable on the balancesheet) On February 28, 2018, Dolphin Corp. issued 10%, 20-year bonds payable with a facevalue of $2,100,000. The bonds pay interest on February 28 and August 31. The companyamortizes bond discount using the straight-line method.Requirements1. If the market interest rate is 9% when Dolphin Corp. issues its bonds, will the bonds bepriced at par, at a premium, or at a discount? Explain.2. If the market interest rate is 11% when Dolphin Corp. issues its bonds, will the bonds bepriced at par, at a premium, or at a discount? Explain.3. Assume that the issue price of the bonds is 94. Journalize the following bonds payabletransactions.a. Issuance of the bonds on February 28, 2018b. Payment of interest and amortization of the bond discount on August 31, 2018c. Accrual of interest and amortization of the bond discount on December 31, 2018…
(Learning Objectives 1, 6: Issue bonds at a discount; amortize using thestraight-line method; report bonds payable and accrued interest payable on the balancesheet) On February 28, 2018, Shark Corp. issued 10%, 10-year bonds payable with a facevalue of $1,500,000. The bonds pay interest on February 28 and August 31. The companyamortizes bond discount using the straight-line method.Requirements1. If the market interest rate is 9% when Shark Corp. issues its bonds, will the bonds bepriced at par, at a premium, or at a discount? Explain.2. If the market interest rate is 11% when Shark Corp. issues its bonds, will the bonds bepriced at par, at a premium, or at a discount? Explain.3. Assume that the issue price of the bonds is 94. Journalize the following bond transactions.a. Issuance of the bonds on February 28, 2018b. Payment of interest and amortization of the bond discount on August 31, 2018c. Accrual of interest and amortization of the bond discount on December 31, 2018…
(Learning Objective 1: Measure cash amounts for a bond payable (premium);amortize bond premium using the straight-line method) Town Bank has $100,000 of 4%debenture bonds outstanding. The bonds were issued at 106 in 2018 and mature in 2038. Thebonds have annual interest payments.Requirements1. How much cash did Town Bank receive when it issued these bonds?2. How much cash in total will Town Bank pay the bondholders through the maturity date ofthe bonds?3. Calculate the difference between your answers to requirements 1 and 2. This differencerepresents Town Bank’s total interest expense over the life of the bonds.4. Compute Town Bank’s annual interest expense using the straight-line amortization method.Multiply this amount by 20. Your 20-year total should be the same as your answer torequirement 3.
Additional Exercises:Learning Objective 2:Question 1 The company issues 8%, 20-year bonds payable with a maturity/face value of $300,000. Interest is paid every 6 months. Using these same bonds, record the issuance of the bonds when they sell for 98. Record the first interest payment.
(Learning Objectives 1, 6: Record bond transactions at par; report bonds payableon the balance sheet) The board of directors of Mailroom Plus authorized the issue of$8,000,000 of 6%, 10-year bonds payable. The semiannual interest dates are May 31 andNovember 30. The bonds are issued on May 31, 2018, at par.Requirements1. Journalize the following transactions:a. Issuance of half of the bonds on May 31, 2018b. Payment of interest on November 30, 2018c. Accrual of interest on December 31, 2018d. Payment of interest on May 31, 20192. Report interest payable and bonds payable as they would appear on the company’s balancesheet at December 31, 2018.
(Learning Objective 1: Journalize basic bond payable transactions and bonds issuedat par) Yancy Corp. issued 6% seven-year bonds payable with a face amount of $110,000when the market interest rate was 6%. Yancy’s fiscal year-end is December 31. The bonds payinterest on January 1 and July 1. Journalize the following transactions for Yancy. Include anexplanation for each entry.a. Issuance of the bonds payable at par on July 1, 2018b. Accrual of interest expense on December 31, 2018c. Payment of cash interest on January 1, 2019d. Payment of the bonds payable at maturity (give the date)
(Learning Objective 2: Issue bonds payable at a premium and amortize bonds using theeffective-interest method) Leon Corporation issued $400,000 of 10%, 10-year bonds payableon January 1, 2019. The market interest rate at the date of issuance was 8%, and the bonds payinterest semiannually (on June 30 and December 31). Leon Corporation’s year-end is June 30.1. Using the PV function in Excel, calculate the issue price of the bonds.2. Prepare an effective-interest amortization table for the bonds through the first three interestpayments. Round amounts to the nearest dollar.3. Record Leon Corporation’s issuance of the bonds on January 1, 2019, and payment of thefirst semiannual interest amount and amortization of the bond premium on June 30, 2019.Explanations are not required.
Learning Objective 3:Question 1: Straight-line MethodWired Inc. sold 10-year bonds with a total face amount of $1,500,000 and a stated rate of 10%. The bonds sold for $1,400,000 on January 1, 2020, and pay interest semiannually on June 30 and December 31.Required:1. Prepare the entry to recognize the sale of the bonds. 2. Determine the amount of the semiannual interest payment required by the bonds. 3. Prepare the journal entry made by Wired at June 30, 2020, to recognize the interest expense and an interest payment.Record the first interest payment. 4. Determine the amount of interest expense for 2020.
(Learning Objective 2: Issue bonds payable at a discount and amortize bonds usingthe effective-interest method) Pearce Corporation issued $580,000 of 6%, 10-year bondspayable on March 31, 2019. The market interest rate at the date of issuance was 10%, and thebonds pay interest semiannually. Pearce Corporation’s year-end is March 31.1. Using the PV function in Excel, calculate the issue price of the bonds.2. Prepare an effective-interest amortization table for the bonds through the first three interestpayments. Round amounts to the nearest dollar.3. Record Pearce Corporation’s issuance of the bonds on March 31, 2019, and payment of thefirst semiannual interest amount and amortization of the bond discount on September 30,2019. Explanations are not required.
(Learning Objectives 1, 6: Record bond transactions at par; report bonds payableon the balance sheet) The board of directors of Canterbury Plus authorized the issue of$9,000,000 of 7%, 15-year bonds payable. The semiannual interest dates are May 31 andNovember 30. The bonds are issued on May 31, 2018, at par.Requirements1. Journalize the following transactions:a. Issuance of half of the bonds on May 31, 2018b. Payment of interest on November 30, 2018c. Accrual of interest on December 31, 2018d. Payment of interest on May 31, 20192. Report interest payable and bonds payable as they would appear on the company’s balancesheet at December 31, 2018.
(Learning Objectives 1, 3: Account for bonds payable retired prior to maturity) OnJanuary 1, 2017, Ditchey Corporation issued five-year, 6% bonds payable with a face valueof $3,500,000. The bonds were issued at 96 and pay interest on January 1 and July 1. Ditcheyamortizes bond discounts using the straight-line method. On December 31, 2019, Ditcheyretired the bonds early by purchasing them at a market price of 99. The company’s fiscal yearends on December 31.Requirements1. Journalize the issuance of the bonds on January 1, 2017.2. Record the semiannual interest payment and amortization of bond discount on July 1,2017.3. Record the interest accrual and discount amortization on December 31, 2017.4. Calculate the carrying value of the bonds payable on December 31, 2019, prior to theirretirement.5. Calculate the gain or loss on the retirement of the bonds payable on December 31, 2019.Indicate where this gain or loss will appear in the financial statements.
(Learning Objectives 1, 3: Account for bonds payable retired prior to maturity)On January 1, 2017, Kittle Corporation issued five-year, 4% bonds payable with a face valueof $2,500,000. The bonds were issued at 95 and pay interest on January 1 and July 1. Kittleamortizes bond discounts using the straight-line method. On December 31, 2019, Kittle retiredthe bonds early by purchasing them at a market price of 97. The company’s fiscal year ends onDecember 31.Requirements1. Journalize the issuance of the bonds on January 1, 2017.2. Record the semiannual interest payment and amortization of bond discount on July 1,2017.3. Record the interest accrual and discount amortization on December 31, 2017.4. Calculate the carrying value of the bonds payable on December 31, 2019, prior to theirretirement.5. Calculate the gain or loss on the retirement of the bonds payable on December 31, 2019.Indicate where this gain or loss will appear in the financial statements.