Financial & Managerial Accounting: Information for Decisions w Access Card, 5th edition, ACC 211 & 212, Northern Virginia Community College
Financial & Managerial Accounting: Information for Decisions w Access Card, 5th edition, ACC 211 & 212, Northern Virginia Community College
5th Edition
ISBN: 9781259347641
Author: Ken W. Shaw, Barbara Chiappetta John J. Wild
Publisher: McGraw Hill Education
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Chapter 10, Problem 2PSB

1.

To determine

Journal entry to record the bonds’ issuance.

1.

Expert Solution
Check Mark

Explanation of Solution

Issue of bonds at discount on January 1, 2017

Date

Account Title and Explanation

Post.

Ref.

Debit

($)

Credit

($)

January 1

Cash

3,010,000

Discount on bonds payable

390,000

Bonds payable

3,400,000

(To record the sold bonds at discount)

Table (1)

  • Cash account is the assets account. Since the cash is received, the value of assets is increased. So, debit the credit the cash account.
  • Discount on bonds payable account is the liabilities account. Here, at the time of issue of the bonds discount has been given which decrease the liabilities of the company. So, debit the discount on bonds payable account.
  • Bonds payable account is the liabilities account. Bonds has been sold, which increases the liabilities of the company. So, credit the bonds payable account.

2.

To determine

Cash payment, straight line amortization and bonds interest expense.

2.

Expert Solution
Check Mark

Explanation of Solution

(a)

Given,
Amount of bond is $3,400,000.
Rate of interest is 10%.
Time period is 0.5.

Formula to calculate the cash at the time of issue of bond,

   Cashpayment=Bondvalue×Rateofinterest×Timeperiod

Substitute $3,400,000 for the bond value, 10% for the rate on interest and 0.5 for time period.

   Cashpayment=$3,400,000×10%×0.5 =$170,000

Hence, cash payment is $170,000.

(b)

Given,
Par value of bond is $3,400,000.
Issued price of bond is $3,010,000.
Number of semiannual period is 20.

Formula to calculate the straight line discount amortization,

   Amortization(straightlinediscount)= Discountonbond Numberofsemiannualperiod

Substitute $390,000 for the discount on bond and 20 for number of semiannual period.

   Amortization(straightlinediscount)= $390,000 20semiannualperiod = $390,000 20semiannualperiod =$19,500

Hence, amortization is $19,500.

Working note:

Calculation of discount on bond,

   Discountonbond=ParvalueofbondIssuedpriceofbond =$3,400,000$3,010,000 =$390,000

(c)

Given,
Cash payment is $170,000.
Amortization expense is $19,500.

Formula to calculate bonds interest payment expense,

   Bondsinterestexpense=Cashpayment+Amortization

Substitute $170,000 for cash payment and $19,500 for amortization.

   Bondsinterestexpense=$170,000+$19,500 =$189,500

Hence, bonds interest expense is $189,500.

3.

To determine

Total amount of interest payable on bond.

3.

Expert Solution
Check Mark

Explanation of Solution

Particulars

Amounts

($)

20 Regular outlays of $170,000

3,400,000

Par value at maturity

3,400,000

Net repaid

6,800,000

Less: Money borrowed

3,010,000

Bond interest expense

3,790,000

Table (2)

Hence, total bond interest expense is $3,790,000.

4.

To determine

First two year of an amortization table.

4.

Expert Solution
Check Mark

Explanation of Solution

End of semiannual period

Unamortized

Discount ($)

Carrying value ($)

January 1, 2017

390,000

3,010,000

June 30, 2017

370,500

3,029,500

December 31, 2017

351,000

3,049,000

June 30 ,2018

331,500

3,068,500

December 31, 2018

312,000

3,088,000

Table (3)

5.

To determine

Journal entry to record the first two interest payment.

5.

Expert Solution
Check Mark

Explanation of Solution

Payment of interest on June 30, 2017

Date

Account Title and Explanation

Post.

Ref.

Debit

($)

Credit

($)

June 30

Bonds interest expense

189,500

Discount on bonds payable

19,500

Cash

170,000

(To record the paid semiannual interest and record amortization)

Table (4)

  • Bonds interest account is an expense account. Interest has been paid by the company which increases the liabilities of the company. So, debit the bonds interest expense account
  • Discount on bonds payable account is the liabilities account. Here, at the time of issue of the bonds discount has been given which increases the liabilities of company. So, credit the discount on bonds payable account.
  • Cash is an asset account. Since the Cash is paid, the value of assets is decreased. So, credit the Cash account.

Payment of interest on December 31, 2017

Date

Account Title and Explanation

Post.

Ref.

Debit

($)

Credit

($)

Dec 31

Bonds interest expense

189,500

Discount on bonds payable

19,500

Cash

170,000

(To record the paid semiannual interest and record amortization)

Table (5)

  • Bonds interest account is an expense account. Interest has been paid by the company which increases the liabilities of the company. So, debit the bonds interest expense account
  • Discount on bonds payable account is the liabilities account. Here, at the time of issue of the bonds discount has been given which increases the liabilities of company. So, credit the discount on bonds payable account.
  • Cash is an asset account. Since the cash is paid, the value of assets is decreased. So, credit the cash account.

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Chapter 10 Solutions

Financial & Managerial Accounting: Information for Decisions w Access Card, 5th edition, ACC 211 & 212, Northern Virginia Community College

Ch. 10 - Prob. 6DQCh. 10 - Prob. 7DQCh. 10 - Prob. 8DQCh. 10 - Prob. 9DQCh. 10 - Prob. 10DQCh. 10 - What is the issue price of a $2,000 bond sold at...Ch. 10 - Prob. 12DQCh. 10 - Prob. 13DQCh. 10 - Prob. 14DQCh. 10 - Prob. 15DQCh. 10 - Prob. 16DQCh. 10 - Prob. 17DQCh. 10 - Prob. 18DQCh. 10 - Prob. 19DQCh. 10 - Prob. 20DQCh. 10 - Prob. 1QSCh. 10 - Prob. 2QSCh. 10 - Prob. 3QSCh. 10 - Prob. 4QSCh. 10 - Prob. 5QSCh. 10 - Prob. 6QSCh. 10 - Recording bond issuance and discount amortization...Ch. 10 - Prob. 8QSCh. 10 - Prob. 9QSCh. 10 - Prob. 10QSCh. 10 - Prob. 11QSCh. 10 - Prob. 12QSCh. 10 - Prob. 13QSCh. 10 - Prob. 14QSCh. 10 - Prob. 15QSCh. 10 - Prob. 16QSCh. 10 - Prob. 17QSCh. 10 - Prob. 18QSCh. 10 - Prob. 19QSCh. 10 - Prob. 20QSCh. 10 - Prob. 1ECh. 10 - Prob. 2ECh. 10 - Prob. 3ECh. 10 - Prob. 4ECh. 10 - Prob. 5ECh. 10 - Prob. 6ECh. 10 - Prob. 7ECh. 10 - Prob. 8ECh. 10 - Prob. 9ECh. 10 - Prob. 10ECh. 10 - Prob. 11ECh. 10 - Prob. 12ECh. 10 - Prob. 13ECh. 10 - Prob. 14ECh. 10 - Prob. 15ECh. 10 - Prob. 16ECh. 10 - Prob. 17ECh. 10 - Prob. 18ECh. 10 - Prob. 19ECh. 10 - Prob. 20ECh. 10 - Prob. 1PSACh. 10 - Prob. 2PSACh. 10 - Prob. 3PSACh. 10 - Prob. 4PSACh. 10 - Prob. 5PSACh. 10 - Prob. 6PSACh. 10 - Prob. 7PSACh. 10 - Prob. 8PSACh. 10 - Prob. 9PSACh. 10 - Prob. 10PSACh. 10 - Prob. 11PSACh. 10 - Prob. 1PSBCh. 10 - Prob. 2PSBCh. 10 - Prob. 3PSBCh. 10 - Prob. 4PSBCh. 10 - Prob. 5PSBCh. 10 - Prob. 6PSBCh. 10 - Prob. 7PSBCh. 10 - Prob. 8PSBCh. 10 - Prob. 9PSBCh. 10 - Problem 10-10BB Effective Interest: Amortization...Ch. 10 - Prob. 11PSBCh. 10 - Prob. 10SPCh. 10 - Prob. 1BTNCh. 10 - Prob. 2BTNCh. 10 - Prob. 3BTNCh. 10 - Prob. 4BTNCh. 10 - Prob. 5BTNCh. 10 - Prob. 6BTNCh. 10 - Prob. 7BTNCh. 10 - Prob. 8BTNCh. 10 - Prob. 9BTN
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