The records of Montana Corporation on January 1, 2020 show the following accounts: Premium on bonds payable Bond issue cost P. 180,000 70,000 450,000 Accrued interest Bonds payable due January 2021 interest at 10% payable semi- annually on January 1 and July 1 9,000,000 On January 1, 2020, the following took place: Cash of P11,700,000 was made available from the sale of P12,000,000 of 10-year 12% bonds. Cash from the new issue was used for the retirement of the 10% bonds at a call price of 102. Prepare the pertinent entries.

The records of Montana Corporation on January 1, 2020 show the following accounts: Premium on bonds payable Bond issue cost P. 180,000 70,000 450,000 Accrued interest Bonds payable due January 2021 interest at 10% payable semi- annually on January 1 and July 1 9,000,000 On January 1, 2020, the following took place: Cash of P11,700,000 was made available from the sale of P12,000,000 of 10-year 12% bonds. Cash from the new issue was used for the retirement of the 10% bonds at a call price of 102. Prepare the pertinent entries.

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

Chapter13: Investments And Long-term Receivables

Section: Chapter Questions

Problem 1RE

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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.
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