Southwest Corporation issued bonds with the following details: Face value: $700,000Interest: 10 percent per year payable each December 31Terms: Bonds dated January 1, 2018, due five years from that date The annual accounting period ends December 31. The bonds were issued at 103 on January 1, 2018, when the market interest rate was 9 percent. Assume the company uses straight-line amortization and adjusts for any rounding errors when recording interest expense in the final year. Required:1. Compute the cash received from the bond issuance in dollars. TIP: The issue price typically is quoted at a percentage of face value.2. & 3. Prepare the journal entry to record the issuance of the bonds and the payment of interest on December 31, 2018 and 2019.4-a. How much interest expense would be reported on the income statements for 2018 and 2019?4-b. Compute the bond value which should be reported on the balance sheets at December 31, 2018 and 2019.

Face value of the bond= $700,000Bonds were issued at $103 (103% of par)The Cash received on bond…

Answered: Southwest Corporation issued bonds with…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable

Section: Chapter Questions

Problem 16E

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Southwest Corporation issued bonds with the following details:

Face value: $700,000

Interest: 10 percent per year payable each December 31

Terms: Bonds dated January 1, 2018, due five years from that date

The annual accounting period ends December 31. The bonds were issued at 103 on January 1, 2018, when the market interest rate was 9 percent. Assume the company uses straight-line amortization and adjusts for any rounding errors when recording interest expense in the final year.

Required:

1. Compute the cash received from the bond issuance in dollars. TIP: The issue price typically is quoted at a percentage of face value.
2. & 3. Prepare the journal entry to record the issuance of the bonds and the payment of interest on December 31, 2018 and 2019.
4-a. How much interest expense would be reported on the income statements for 2018 and 2019?
4-b. Compute the bond value which should be reported on the balance sheets at December 31, 2018 and 2019.

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