Concept explainers
Reporting bonds at fair value
• LO14–6
(Note: This is a variation of E 14–13 modified to consider the fair value option for reporting liabilities.) 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. Federal determines interest at the effective rate. Federal elected the option to report these bonds at their fair value. On December 31, 2018, the fair
Required:
1. Prepare the
2. Assume the fair value of the bonds on December 31, 2019, had risen to $736 million. Prepare the journal entry to adjust the bonds to their fair value for presentation in the December 31, 2019, balance sheet. Federal determined that one-half of the increase in fair value was due to a decline in general interest rates.
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Chapter 14 Solutions
INTERMEDIATE ACCOUNTING RMU 9TH EDITION
- Exercise 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_forward(Note: This is a variation of E 14–13 modified to consider the fair value option for reporting liabilities.) FederalSemiconductors issued 11% bonds, dated January 1, with a face amount of $800 million on January 1, 2018. Thebonds sold for $739,814,813 and mature on December 31, 2037 (20 years). For bonds of similar risk and maturitythe market yield was 12%. Interest is paid semiannually on June 30 and December 31. Federal determines interestat the effective rate. Federal elected the option to report these bonds at their fair value. On December 31, 2018,the fair value of the bonds was $730 million as determined by their market value in the over-the-counter market.Required:1. Prepare the journal entry to adjust the bonds to their fair value for presentation in the December 31, 2018,balance sheet. Federal determined that none of the change in fair value was due to a decline in general interestrates.2. Assume the fair value of the bonds on December 31, 2019, had risen to $736 million.…arrow_forwardS14-4 Pricing bonds Bond prices depend on the market rate of interest, stated rate of interest and time. Requirements 1. Compute the price of the following 8% bonds of Country Telecom. a. $100,000 issued at 75.25 c. $100,000 issued at 94.50 b. $100,000 issued at 103.50 d. $100,000 issued at 103.25 2. Which bond will Country Telecom have to pay the most to retire at maturity: Explain your answer.arrow_forward
- 18 A company issues P5,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2022. Interest is paid on June 30 and December 31. The proceeds from the bonds are P4,901,036. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2022 statement of financial position? 4,903,160.00 4903160 4,903,160 4903160arrow_forward*P15.8A YLO 6) On January 1, 2020, Lock Corporation issued $1,800,000 face value, 5%, 10-year bonds st$1,667,518. This price resulted in an effective-interest rate of 6% on the bonds. Lock uses the effective- interest method to amortize bond premium or discount. The bonds pay annual interest January 1. Pre issE ane us Instructions (Round all computations to the nearest dollar.) a. Prepare the journal entry to record the issuance of the bonds on January 1, 2020. b. Prepare an amortization table through December 31, 2022 (three interest periods) for this bond issue. c. Prepare the journal entry to record the accrual of interest and the amortization of the discount on December 31, 2020. d. Prepare the journal entry to record the payment of interest on January 1, 2021. e. Prepare the journal entry to record the accrual of interest and the amortization of the discount on December 31, 2021.arrow_forwardQ#9 On June 30, 2021, Singleton Computers issued 5% stated rate bonds with a face amount of $280 million. The bonds mature on June 30, 2036 (15 years). The market rate of interest for similar bond issues was 4% (2.0% semiannual rate). Interest is paid semiannually (2.5%) on June 30 and December 31, beginning on December 31, 2021. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)Required:1. Determine the price of the bonds on June 30, 2021.2. Calculate the interest expense Singleton reports in 2021 for these bonds using the effective interest method. 1. Table values are based on: n = i = Cash Flow Amount Present Value Interest Principal Price of bondsarrow_forward
- Exercise 5-21 (Algo) Price of a bond [LO5-9, 5-10] On September 30, 2024, the Techno Corporation issued 8% stated rate bonds with a face amount of $360 million. The bonds mature on September 30, 2044 (20 years). The market rate of interest for similar bonds was 10%. Interest is paid semiannually on March 31 and September 30. Required: Determine the price of the bonds on September 30, 2024. Note: Use tables, Excel, or a financial calculator. Round your final answers to nearest whole dollar amount, not in millions. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Time values are based on: n = i= Cash Flow Interest Principal Price of bonds $ Amount 40 5% 9,600,000 $ Present Value 31,195,340arrow_forwardq11. Bonds with face value of P5,000,000 carrying a stated interest rate of 12% payable semiannually on March 1 and September 1 were issued on July 1. The total proceeds from the issue amounted to P5,200,000. The best explanation for the excess amount received over the face value is thatA. the bonds were sold at a premium.B. the bonds bear an interest rate lower than the market rate of interest at the date of bond issuance.C. the bonds were issued at face value plus accrued interest.D. the bonds were sold at a discount plus accrued interest.arrow_forwardPA10-4 Comparing Bonds Issued at Par, Discount, and Premium [LO10-3] Net Work Corporation, whose annual accounting period ends on December 31, issued the following bonds: Date of bonds: January 1, 2020 Maturity amount and date: $270,000 due in 10 years (December 31, 2029) Interest: 10 percent per year payable each December 31 Date issued: January 1, 2020 Required: 1. Provide the following amounts to be reported on the January 1, 2020, financial statements immediately after the bonds were issued: (Amounts to be deducted should be indicated with minus sign.) ces Case A Case B (issued at 100) (issued at 98) (issued at 105) Case C a. Bonds payable b. Unamortized premium (or discount) c. Carrying value 0 $ 2. This part of the question is not part of your Connect assignment.arrow_forward
- PB5. LO 13.3 Dixon 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 annually. 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. June 30, 2019: entry to record payment of interest to bondholders C. June 30, 2019: entry to record amortization of discount D. June 30, 2020: entry to record payment of interest to bondholders E. June 30, 2020: entry to record amortization of discountarrow_forward! Required information P10-10 (Algo) Preparing a Bond Amortization Schedule for a Bond Issued at a Premium LO10-5 [The following information applies to the questions displayed below.] On January 1 of this year, Olive Corporation issued bonds. Interest is payable once a year on December 31. The bonds mature at the end of four years. Olive uses the effective-interest amortization method. The partially completed amortization schedule below pertains to the bonds: 1/1/20x1 12/31/20x1 12/31/20x2 12/31/20x3 12/31/20x4 Date P10-10 Part 1 Date 1/1/20x1 12/31/20x1 12/31/20x2 12/31/20x3 12/31/20x4 $ Cash $ 1,792 ? ? ? Required: 1. Complete the amortization schedule. Note: Enter all your values in positive. Round your final answers to nearest whole dollar amount. Cash 1,792 $ $ Interest $ 1,661 ? ? 1,640 Interest 1,661 $ 1,640 Amortization $ 131 ? 145 ? Amortization $ $ 131 $ $ 145 $ Balance 32,566 32,435 32,297 Balance $ 32,566 32,435 32,297 ? 32,000 32,000arrow_forwardst ve this K Kendrick Corporation issued $660,000 of 7%, 10-year bonds payable on March 31, 2019. The market interest rate at the date of issuance was 9%, and the bonds pay interest semiannually Kendrick Corporation's year-end is March 31 Read the requirements. 1. Using the PV function in Excel", calculate the issue price of the bonds. (Round your answer to the nearest whole dollar) The issue price of the bonds is 5 Demodocs ex Requirements 1. Using the PV function in Excel, calculate the issue price of the bonds. 2. Prepare an effective-interest amortization table for the bonds through the first three interest payments. Round amounts to the nearest dollar. 3. Record Kendrick Corporation's issuance of the bonds on March 31, 2019, and payment of the first semiannual interest amount and amortization of the bond i discount on September 30, 2019 Explanations are not required. X k answer correct: 3 (1)arrow_forward
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