1.
Introduction: When bonds are issued at par, cash is debited and bonds payable is credited for the bond’s par value.Bonds are issued at a discount when the contract price is less than the market price, making the issue price less than par.
To determine: Prepare
1.
Answer to Problem 5PSB
Journal entry at the time of issuance of bonds on discount
Explanation of Solution
Date | Particulars | Debit | Credit |
1 Jan | Cash |
| |
Discount on bonds payable
|
| ||
Bonds Payable |
| ||
(Being bonds sold at discount) |
2.
Introduction: When bonds are issued at par, cash is debited and bonds payable is credited for the bond’s par value.Bonds are issued at a discount when the contract price is less than the market price, making the issue price less than par.
To determine: Compute the amount of total bond interest expense.
2.
Answer to Problem 5PSB
Total bond interest expense to be recognized over the life of bond is
Explanation of Solution
3.
Introduction: When bonds are issued at par, cash is debited and bonds payable is credited for the bond’s par value.Bonds are issued at a discount when the contract price is less than the market price, making the issue price less than par.
To determine: Prepare first two year amortization table.
3.
Answer to Problem 5PSB
Two years amortization table and check the amount
Explanation of Solution
Semi Annual Period End | Unamortized Discount | Carrying Value |
01/01/2016 |
|
|
06/30/2016 |
|
|
12/31/2016 |
|
|
06/30/2017 |
|
|
12/31/2017 |
|
|
Computation of discount to be amortized for in each semiannual period:
4.
Introduction: When bonds are issued at par, cash is debited and bonds payable is credited for the bond’s par value.Bonds are issued at a discount when the contract price is less than the market price, making the issue price less than par.
To determine: Journal Entries of First two interest payment.
4.
Answer to Problem 5PSB
Journal Entry for payment of interest on June 30 & 31 December 2016.
Explanation of Solution
Date | Particulars | Debit | Credit |
30 June | Interest Expense on bonds |
| |
Discount on bonds payable |
| ||
Cash |
| ||
(Being semiannual interest paid and discount on bonds amortized) |
Date | Particulars | Debit | Credit |
31Dec | Interest Expense on bonds |
| |
Discount on bonds payable |
| ||
Cash |
| ||
(Being semiannual interest paid and discount on bonds amortized) |
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Chapter 10 Solutions
Financial Accounting: Information for Decisions
- 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.arrow_forwardCornerstone Exercise (Appendix 9A) Bond Issue Price On January 1, 2021, Callahan Auto issued $900,000 of 9%, 10-year bonds. Interest is payable semiannually on June 30 and December 31. Required: What is the issue price if the bonds are sold to yield 8%? (Note: Round to the nearest dollar.)arrow_forwardEdward Inc. issued bonds with a $500,000 face value, 10% interest rate, and a 4-year term on July 1, 2018 and received $480,000. Interest is payable semiannually. The discount is amortized using the straight-line method. Prepare journal entries for the following transactions. A. July 1, 2018: entry to record issuing the bonds B. Dec. 31, 2018: entry to record payment of interest to bondholders C. Dec. 31, 2018: entry to record amortization of discountarrow_forward
- On October 1 a company sells a 3-year, $2,500,000 bond with an 8% stated interest rate. Interest is paid quarterly and the bond is sold at 89.35. On October 1 the company would collect ________. A. $200,000 B. $558,438 C. $2,233,750 D. $6,701,250arrow_forwardAggies Inc. issued bonds with a $500,000 face value, 10% interest rate, and a 4-year term on July 1, 2018, and received $540,000. Interest is payable semi-annually. The premium is amortized using the straight-line method. Prepare journal entries for the following transactions. A. July 1, 2018: entry to record issuing the bonds B. Dec. 31, 2018: entry to record payment of interest to bondholders C. Dec. 31, 2018: entry to record amortization of premiumarrow_forward
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