Chapter 14, Problem 13P

1.

To determine

Prepare journal entries to record all transactions occurred during the period 2016, of Corporation D.

Explanation of Solution

Bonds:

Bonds are long-term promissory notes that are issued by a company while borrowing money from investors to raise fund for financing the operations.

Prepare journal entries to record all transactions occurred during the period 2016, of Corporation D.

Date	Account titles and Explanation	Debit	Credit
January 1, 2016	Cash	$820,302
	Premium on bonds payable		$20,302
	Bonds payable		$800,000
	(To record issuance of bonds payable)
February 28, 2016	Interest expense (balancing figure)	$9,792
	Discount on bonds payable $\left(\frac{\$3,960}{5\text{years}}\right)$		$792
	Cash $\left(\text{\$100,000}\times \text{9\%}\right)$		$9,000
	(To record payment of interest expense)
March 31, 2016	Interest expense	$30,000
	Discount on convertible bonds $\left(\frac{\$17,500}{7}\right)$		$2,500
	Cash $\left(\$500,00011\%\times \frac{6}{12}\right)$		$27,500
	(To record payment of interest expense)
May 1,2016	Cash $\left(\left(\frac{600}{3}\right)\times \$27\right)$	$5,400
	Common stock warrants $\left(600\times \frac{\$4,800}{1,500}\right)$	$1,920
	Common stock $\left(\frac{600}{3}\times \$10\right)$		$2,000
	Additional paid in capital on common stock		$5,320
	(To record detachable warrants of common stock)
June 30, 2016	Interest expense	$81,250
	Cash $\left(\$1,300,000\times 12.5\%\times \frac{6}{12}\right)$		$81,250
	(To record payment of interest expense)
June 30, 2016	Interest expense $\left(\$820,302\times 10\%\times \frac{6}{12}\right)$	$41,015.10
	Premium on bonds payable	$2,984.90
	Cash $\left(\$800,000\times 11\%\times \frac{6}{12}\right)$		$44,000
	(To record payment of interest expense)
September 30, 2016	Interest expense	$30,000
	Discount on convertible bonds payable $\left(\frac{\$15,000}{6}\right)$		$2,500
	Cash $\left(\$500,000\times 11\%\times \frac{6}{12}\right)$		$27,500
	(To record payment of interest expense)
September 30, 2016	Convertible bonds payable	$100,000
	Discount on convertible bonds payable $\left(\frac{\$12,500}{5}\times 1\right)$		$2,500
	Common stock $\left(100\text{bonds}\times \text{30}\times \text{\$10}\right)$		$30,000
	Additional paid in capital - common stock		$67,500
	(To record conversion of conversion of convertible bonds)
November 1, 2016	Interest expense $\left(\$204,329.28\times 10\%\times \frac{6}{12}\times \frac{4}{6}\right)$	$6,810.98
	Premium on bonds payable $\left(\$200,000\times 11\%\times \frac{4}{12}\right)$	$522.35
	Interest payable		$7,333.33
	(To record payment of interest expense)
November 1, 2016	Bonds payable	$200,000
	Interest payable	$7,333.33
	Premium on bonds payable	$3,806.92
	Loss on bonds redemption	$10,193.08
	Cash $\left(\$200,000\times 1.07+\$7,333.33\right)$		$221,333.33
	(To record retirement of bonds payable)
December 31, 2016	Interest expense	$81,250
	Cash $\left(\$1,300,000\times 12.5\%\times \frac{6}{12}\right)$		$81,250
	(To record payment of interest expense)
December 31, 2016	Interest expense	$12,000
	Discount on convertible bonds $\left(\frac{\$10,000}{5}\times \frac{3}{6}\right)$		$1,000
	Interest payable $\left(\$400,000\times 11\%\times \frac{3}{12}\right)$		$11,000
	(To record payment of interest expense)
December 31, 2016	Interest expense	$8,160
	Discount on convertible bonds $\left(\left(\frac{\$3,960}{5}\right)\times \frac{10}{12}\right)$		$660
	Interest payable $\left(\$100,000\times 9\%\times \frac{10}{12}\right)$		$7,500
	(To record payment of interest expense)
December 31, 2016	Interest expense $\left(\left(\$80,000-\$19,895\right)\times 10\%\right)$	$6,010.50
	Discount on notes payable		$6,010.50
	(To record payment of interest expense)
December 31, 2016	Interest expense	$30,649.39
	Premium on bonds payable $\left(\$33,000-\$30,649.39\right)$	$2,350.61
	Cash $\left(\$600,000\times 11\%\times \frac{6}{12}\right)$		$33,000.00
	(To record payment of interest expense)

Table (1)

Working notes:

Calculate loss on bonds redemption.

$\begin{array}{c}\text{Loss on redemption of bonds =}\text{Call price of bonds }-\text{Face value of bonds}\text{plus interest}\\ \text{=}\text{\$214,000}-\left(\$200,000+\$3,806.92\right)\\ =\$10,193.08\end{array}$

Calculate unamortized premium as on 11/01/2016.

Particulars	Amount
Unamortized premium on 1/1/2013 ($20,302 × 1÷ 4)	$5,075.50
Less: Amortized as on 6/30/2013 ($2,984.90 × 1 ÷ 4)	$746.23
Less: Amortized as on 11/1/2013 ($2,984.90 × 1 ÷ 4)	$522.35
Unamortized premium as on 11/1/2013	$3,806.92

Table (2)

2.

To determine

Prepare long-term debt section of Corporation D‘s partial balance sheet as on 31^st December 2016.

Explanation of Solution

Notes payable:

Notes Payable is a written promise to pay a certain amount on a future date, with certain percentage of interest. Companies use to issue notes payable to meet short-term financing needs

Corporation D
Long-Term Debt
December 31, 2016
Particulars	Amount	Amount
12.5%  bonds payable (due 31st December 2018)		$1,300,000
Add: 11% convertible bonds (due 31st March 2019)	$400,000
Less: discount on bonds payable	$9,000	$391,000
9% Bonds (detachable warrants)	$100,000
Less: Discount on bonds payable	$2,508	$97,492
11% Bonds payable (due 31st December 2019)	$600,000
Add: Premium on bonds payable	$10,637.22	$610,637.22
4 years non-interest bearing note	$80,000
Less: Discount on notes payable	$13,884.50	$66,115.50
Total long term liabilities		$2,465,244.72

Table (3)