Issuance of bonds; effective interest
• LO14–2
Federal Semiconductors issued 11% bonds, dated January 1, with a face amount of $800 million on January 1, 2018. The bonds sold for $739,814,813 and mature on December 31, 2037 (20 years). For bonds of similar risk and maturity the market yield was 12%. Interest is paid semiannually on June 30 and December 31.
Required:
1. Prepare the
2. Prepare the journal entry to record interest on June 30, 2018 (at the effective rate).
3. Prepare the journal entry to record interest on December 31, 2018 (at the effective rate).
4. At what amount will Federal report the bonds among its liabilities in the December 31, 2018,
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Chapter 14 Solutions
INTERMEDIATE ACCOUNTING RMU 9TH EDITION
- Cornerstone 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_forwardBrief ExerciseBonds Issued at a Premium (Effective Interest) Refer to the information above for Haley Industries. Required: Prepare the journal entry for December 31, 2022 and 2023. Use the following information for Brief Exercises 9-55 and 9-58: Haley Industries issued $120,000 of 11% , 7-year bonds on January 1, 2020, with $5,842 pre- mium. Interest is paid annually on December 31. The market rate of interest is 10%.arrow_forwardExercise Bonds with Annual Interest Payments Kiwi Corporation issued at par $350,000, 9% bonds on January 1, 2020. Interest is paid annually on December 31. The principal and the final interest payment are due on December 31, 2021. Required: Prepare the entry to recognize the issuance of the bonds. Prepare the journal entry for December 31, 2020. Prepare the journal entry to record repayment of the principal on December 31, 2021. CONCEPTUAL CONNECTIONHow would the interest expense for 2020 change if the bonds had been issued at a premium?arrow_forward
- Question 25 On June 1, 2020, Mitchell Inc. issued 100, 8%, $1,000 bonds dated June 1, 2020 for $108,530. The bonds pay cash interest semiannually each June 30, and December 31, and were issued to yield 6%. The bonds mature May 31, 2025, and the compar uses the effective interest method to amortize bond discounts or premiums. The partial amortization schedule is as follows: Amortization schedule Cash Effective Premium Outstanding Interest Interest amortization Balance 0 06/01/20 $108.530 1 11/30/20 $4.000 $3.256 ($744) 107,786 2 05/31/21 4,000 3,234 (766) 107,020 Required: Prepare journal entries on the following dates. Round to the nearest dollar. 1. June 1, 2020, bond issuance. 2. November 30, 2020, interest payment. 3. December 31, 2020, adjusting entry. Note: You may create a table as follows to organize your journal entries. Date Account titles Debit Credit 1 Cash 10,000 Sales Revenue 10,000 Edt Format Table 12pt v Paragraoh v B I U 24 6. W R. T F G K L 2N M AV alt ctrtarrow_forwardExercise 10.9 (Algo) Accounting for Bonds Issued at a Premium: Issuance, Interest Payments, and Retirement (LO10-5, LO10-6) Xonic Corporation issued $8.5 million of 20-year, 8 percent bonds on April 1, 2021, at 102. Interest is paid on March 31 and September 30 of each year, and all of the bonds in the issue mature on March 31, 2041 Xonic's fiscal year ends on December 31. Prepare the following journal entries. a. April 1, 2021, to record the issuance of the bonds. b. September 30, 2021, to pay interest and to amortize the bond premium. c. March 31, 2041, to pay interest, amortize the bond premium, and retire the bonds at maturity (make two separate entries). Assume an adjusting entry was made on December 31, 2040, to recognize interest from October 1 to December 31. d. What is the effect of amortizing the bond premium on (1) annual net income and (2) annual net cash flow from operating activities. (ignore possible income tax effects.) (If no entry is required for a transaction/event,…arrow_forwardACC298 Timed Practice Problem 1: Delish Company issued $500,000, 10%, 5-year bonds on January 1, 2022 for $480,000. Interest is payable annually on January 1. The company uses the straight-line method to amortize any bond premium or discount. Instructions: (a) Did these bonds issue at a Premium or at a Discount? (b) Prepare the journal entry to record the issuance of the bonds. (c) Calculate the amount of the first interest payment. (d) Calculate the amount of interest expense Delish would record on Dec. 31, 2022. (b) (c) Chapter 10arrow_forward
- 18 Required information [The following information applies to the questions displayed below.] Temptation Vacations issues $49 million in bonds on January 1, 2024, that pay interest semiannually on June 30 and December 31. Portions of the bond amortization schedule appear below: (1) Date 1/1/2024 6/30/2024 12/31/2024 (2) Cash Paid for Interest Face amount $1,470,000 1,470,000 (3) Interest Expense $1,378,755 1,376,473 (4) Decrease in Carrying Value $91,245 93,527 (5) Carrying Value $55,150, 180 55,058,935 54,965,408 3. What is the face amount of the bonds? (Enter your answer in whole dollars, not millions (i.e., $5.5 million should be entered as 5,500,000).)arrow_forwardScenario 1 On January 1, 2018, Harvey Inc. issued $1,000,000 of 10 years, 6% bonds when the market rate was 10%. The bonds pay semi-annual interest on July 1 and December 31. Required What is the entry to record the issuance of the bond on January 1, 2018? What is the entry to record the first interest payment on July 1, 2018? What is the carrying amount of the bond on January 1, 2022? Scenario 2 On January 1, 2020, Harvey Inc. made available $100,000 of 20 years, 10% bonds at par value. The bonds pay quaterly interest on April 1, July 1, October 1 and December 31. The bonds were purchased on June 1, 2020, by an investor. Required What is the entry to record the issuance of the bond on January 1, 2020? What is the entry to record the purchase of the bond on June 1, 2020? What is the entry to record the first interest payment on July 1, 2020?arrow_forwardQuestion 17 - Journalize the following transactions CAB Corporation issues $9,000,000 of 5 year, 8% bonds at a market rate of 6% receiving cash of $9,488,844. Interest is paid semiannually. 1. Journalize issuance of bonds on May 1, 2019. 2. Journalize interest payment on November 1, 2019, include amortization of Bond Premium or Bond Discounts using straight line. 3. What is the carrying value that should be reported on the Balance Sheet for November 30, 2019. Please provide the detail below.arrow_forward
- ond-Question 1 n September 1, 2021, Imperial Corporation issued $1,000,000, 6%, 10-year bonds. Interest is payable annually with the first payment due on September 1, 2022 structions a) b) C) Provide the appropriate journal entry on September 1, 2021 to record the issuance of the bonds if the market rate of interest is 5% and the bond was issued for $1,077,217 Assuming Imperial has a December 31 year end, prepare the 2021 year-end adjusting entry to account for accrued interest on the bonds. Round your answer to the nearest dollar Prepare a partial balance sheet at December 31, 2021 for Imperial Corporation displaying all amounts related to the bonds Prepare the journal entry on September 1, 2022 to record the first interest payment. Assume the bonds were redeemed for $1,050,000 at September 30, 2024 when the amortized cost was $ 1,035,000 Record the redemption of the bonds d) e) Student Response:arrow_forwardQuestion #2 (45 marks) This question consists of 2 independent sub-questions 1. 25 marks On January 1, 2019, Lissome Corp. issued $900,000 of 20-year, 11% bonds for $832,290, yielding a market (discount, yield) rate of 12%. Interest is payable semi-annually on June 30 and December 31. Required: a. Prepare journal entries to record the bond issuance. Prepare the 3-column amortization table for 4 periods. b. Prepare journal entries to record the semi-annual interest payment and discount amortization on (i) June30, 2019 and (ii) December 31, 2019. C. Lissome elected to report the bonds in its financial statements at fair market value. On December 31, 2019, these bonds were listed in the bond market at a price of 101 (or 101% of par value). What entry is required to adjust the reported value of these bonds to fair value? d. Determine the income statement effects of (b) and (c) for 2019. That is, the interest expense and any unrealized gain/loss.arrow_forwardjournal entry jan 1, 2024 june 30, 2024 dec 31, 2024 On January 1, 2024, Splash City issues $420,000 of 7% bonds, due in 10 years, with interest payable semiannually on June 30 and December 31 each year. Assuming the market interest rate on the issue date is 8 %, the bonds will issue at $391,462. Exercise 9-11 (Algo) Part 2 2. Record the bond issue on January 1, 2024, and the first two semiannual Interest payments on June 30, 2024, and December 31, 2024. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field. Round your Intermediate and final answers to the nearest whole dollar.) View transaction list Journal entry worksheetarrow_forward
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