Problem 24-30 (IAA) On January 1, 2014, Aroma Company purchased bonds with face amount of P5,000,000 for P4,766,000. The stated rate on the bonds is 10% but the bonds are acquired to yield 12%. The bonds mature at the rate of P1,000,000 annually every December 31 and the interest is payable annually also every December 31. The entity used the effective interest method of amortization. What is the carrying amount of the bond investment on December 31, 2014? 1766 0000

Problem 24-30 (IAA) On January 1, 2014, Aroma Company purchased bonds with face amount of P5,000,000 for P4,766,000. The stated rate on the bonds is 10% but the bonds are acquired to yield 12%. The bonds mature at the rate of P1,000,000 annually every December 31 and the interest is payable annually also every December 31. The entity used the effective interest method of amortization. What is the carrying amount of the bond investment on December 31, 2014? 1766 0000

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 76E

See similar textbooks

Related questions

Q: 9. on July 1, 2018, Joalin Company purchased Heyoon Company ten-year, 8% bonds with a face amount of…

A: "Since you have asked multiple questions, we will solve first question for you. If you want any…

Q: Problem 1: On January 1, 2011, an entity issues bonds with face amount of P5,000,00 for P5,733,129.…

A: Here asked for multi question we will solve for first question as per guidelines. If you need…

Q: On January 1, 2014, Orland co. purchased a 10-year, 10% P 3,000,000 face value bonds for 110…

A: Orland co.'s objective is to hold the debt instrument (10% bonds) to collect the contractual cash…

Q: Prepare journal entries to record the issuance of (1) the 12% bonds and (2) the redemption of the 8%…

A: Debentures: Company accept loan from general public through debentures.It is capital raised by…

Q: 37 Cullumber Electric sold $7,680,000, 10%, 10-year bonds on January 1, 2022. The bonds were dated…

A: As per our protocol we provide solution to the one question only or to the first three sub-parts…

Q: A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2013. Interest is paid…

A: Face Value of Bonds $1,00,00,000 Less: Proceeds from the bonds $98,02,072 Discount on bonds…

Q: 2. McCool Corporation wholesales repair products to equipment manufacturers. On April 1, 2010 McCool…

A: 2. Following are the journal entries: c. The company was able to issue bonds for $32,446,500 rather…

Q: On March 1, 2014, Medium Corp. issued at 103 excluding accrued interest, 1,000 of its 15% , P 1,000…

A: A bond is a fixed-income instrument that represents a loan made by an investor to a borrower.

Q: 18. During 2010, Nader Co. purchased 2,000, $1,000, 9% bonds. The carrying value of the bonds at…

A: BondIt is the instrument of the indebtedness of an issuer of the bond to the holders of the bond.

Q: Problem 1: On January 1, 2011, an entity issues bonds with face amount of P5,000,00 for P5,733,129.…

A: "Since you have asked multiple questions, we will solve first question for you. If you want any…

Q: On January 1, 2021, MACADAMIA Company issued 5-year bonds with a face value of ₱5,000,000 at 110.…

A: SOLUTION- BOND IS A WRITTEN AGREEMENT OR CONTRACT BETWEEN AN ISSUER AND THE HOLDER THAT REQUIRES THE…

Q: P-4***On July 1,2011, SUNSHINE Company issued P2,000,000, 10% bonds, which mature in five years. The…

A: Please see Step 2 for required information.

Q: 12. On July 1, 2012, Madison Company received P1,032,880 for P1,000,000 face amount, 12% bonds, a…

A: Since you have asked multiple question, we will solve the first question for you. If you want any…

Q: A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid…

Q: Brief Exercise 14-1 Flounder Corporation issues $560,000 of 8% bonds, due in 10 years, with…

A: Bond issue price = Present value of interest component @ market rate + Present Value of principal…

Q: E 14-7 Devon Harris Company sells 10% bonds having a maturity value of $2,000,000 for $1,855,816.…

A: As posted multiple independent questions we are answering only first question kindly repost the…

Question

Please answer and show solution

Problem 24-30 (IAA)
On January 1, 2014, Aroma Company purchased bonds with
face amount of P5,000,000 for P4,766,000. The stated rate on
the bonds is 10% but the bonds are acquired to yield 12%
The bonds mature at the rate of P1,000,000 annually every
December 31 and the interest is payable annually also
December 31. The entity used the effective interest method
of amortization. What is the carrying amount of the bond
investment on December 31, 2014?
every
a. 4,766,000
b. 3,694,080
c. 4,837,920
d: 3,837,920
C.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Step by step

Solved in 4 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Wilbury Corporation issued 1 million of 13.5% bonds for 985,071.68. The bonds are dated and issued October 1, 2019, are due September 30, 2020, and pay interest semiannually on March 31 and September 30. Assume an effective yield rate of 14%. Required: 1. Prepare a bond interest expense and discount amortization schedule using the straight-line method. 2. Prepare a bond interest expense and discount amortization schedule using the effective interest method. 3. Prepare adjusting entries for the end of the fiscal year December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. If income before interest and income taxes of 30% in 2020 is 500,000, compute net income under each alternative. 5. Assume the company retired the bonds on June 30, 2020, at 98 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight line method of amortization b. effective interest method of amortization 6. Compute the companys times interest earned (pretax operating income divided by interest expense) for 2020 under each alternative.
MASTERY PROBLEM Jackson, Inc.s fiscal year ends December 31. Selected transactions for the period 20-1 through 20-8 involving bonds payable issued by Jackson are as follows: 20-1 Oct. 31 Issued 600,000 of 10-year, 7%, callable bonds dated October 31, 20-1, for 612,000. Interest is payable semiannually on October 31 and April 30. The bond indenture provides that Jackson is to pay to the trustee bank 20,000 by May 15 of each year (except the tenth year) as a sinking fund for the retirement of the bonds on call or at maturity. Dec. 31 Made the adjusting entry for interest payable and amortized two months premium on the bonds (straight-line method). 20-2 Jan. 2 Reversed the adjusting entry for interest payable and bond premium amortization. Apr. 30 Paid the semiannual interest on the bonds and amortized six months premium. May 15 Paid the sinking fund trustee 20,000. Oct. 31 Paid the semiannual interest on the bonds and amortized six months premium. Dec. 31 Made the adjusting entry for interest payable and amortized two months premium on the bonds. 31 Sinking fund earnings for the year were 900. 20-8 May 15 Paid the sinking fund trustee 20,000. Oct. 31 Paid the semiannual interest on the bonds and amortized six months premium. 31 Redeemed the bonds, which were called at 97. The balance in the bond premium account is 3,600 after the payment of interest and amortization of premium have been entered. The cash balance in the sinking fund is 200,000, which is applied to the redemption. Jackson paid the sinking fund trustee the additional cash needed to pay off the bonds. (Hint: First make the entry for payment to the sinking fund, then make the entry for redemption of the bonds.) REQUIRED 1. Enter the preceding transactions in general journal form. 2. Calculate the carrying value of the bonds as of December 31, 20-2.
Cornerstone Exercise 9-22 Reporting Long-Term Debt on the Balance Sheet Dennis Corp. has the following bonds: $2,000,000 in bonds that have $10,000 of unamortized discount associated with them $500,000 in bonds that have $25,000 of unamortized premium associated with them. Required: Prepare the balance sheet presentation for these two bonds.
Transfer between Categories On December 31, 2018, Leslie Company held an investment in bonds of Kaufmann Company which it categorized as being held to maturity. At that time, the 8%, 100,000 face value bonds had a carrying value of 107,023.56 and were being amortized using the effective interest method based on a market rate of 7%. Interest on these bonds is paid annually each December 31. On December 31, 2019, after recording the interest earned, Leslie decided to reclassify the Kaufmann bonds to its available-for-sale category in anticipation of a major restructuring. At that time, the ending quoted market price for the bonds was 105,000. Required: Prepare the journal entries on December 31, 2019, to record the interest earned and the reclassification.
Bats Corporation issued 800,000 of 12% face value bonds for 851,705.70. The bonds were dated and issued on April 1, 2019, are due March 31, 2023, and pay interest semiannually on September 30 and March 31. Bats sold the bonds to yield 10%. Required: 1. Prepare a bond interest expense and premium amortization schedule using the straight-line method. 2. Prepare a bond interest expense and premium amortization schedule using the effective interest method. 3. Prepare any adjusting entries for the end of the fiscal year, December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. Assume the company retires the bonds on June 30, 2020, at 103 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight-line method of amortization b. effective interest method of amortization
Cornerstone Exercise Debt Issued at a Premium (Straight Line) Refer to the information for Ironman Steel above. Required: Prepare the amortization table for Ironman Steels bonds(Note: Round to the nearest dollar.) Use the following information for Cornerstone Exercises 9-31 and 9-32: Sicily Corporation issued $300,000 in 5% bonds (payable on December 31, 2029) on January 1, 2020, for $257,363. Interest is paid on June 30 and December 31. The market rate of interest is 7%.
Entries for issuing and calling bonds; gain Emil Corp. produces and sells wind-energy-driven engines. To finance its operations, Emil Corp. issued 15,000,000 of 20-year, 9% callable bonds on May 1, 2016 at their face amount, with interest payable on May 1 and November 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions: 2016 May 1. Issued the bonds for cash at their face amount. Nov.1. Paid the interest on the bonds. 2022 Nov.1. Called the bond issue at 96, the rate provided in the bond indenture. (Omit entry for payment of interest.)
Cornerstone Exercise 9-24 Issuance of Long-Term Debt EWO Enterprises issues $4,500,000 of bonds payable. Required: Prepare the necessary journal entries to record the issuance of the bonds assuming the bonds were issued (a) at par, (b) at 104.5, and (c) at 99.
Saverin, Inc. produces and sells outdoor equipment. On July 1, 2016, Saverin, Inc. issued 62,500,000 of 10-year, 9% bonds at a market (effective) interest rate of 8%, receiving cash of 66,747,178. 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. 2. Journalize the entries to record the following: a. The first semiannual interest payment on December 31, 2016, and the amortization of the bond premium, using the interest method. (Round to the nearest dollar.) b. The interest payment on June 30, 2017, and the amortization of the bond premium, using the interest method. (Round to the nearest dollar.) 3. Determine the total interest expense for 2016.