Determine the price of bonds; issuance; effective interest
• LO14–2
The Bradford Company issued 10% bonds, dated January 1, with a face amount of $80 million on January 1, 2018. The bonds mature on December 31, 2027 (10 years). For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on June 30 and December 31.
Required:
1. Determine the price of the bonds at January 1, 2018.
2. Prepare the
3. Prepare the journal entry to record interest on June 30, 2018 (at the effective rate).
4. Prepare the journal entry to record interest on December 31, 2018 (at the effective rate).
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Chapter 14 Solutions
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- Current position analysis The bond indenture for the 10-year, 9% debenture bonds issued January 2, 20Y5, required working capital of 100,000, a current ratio of 1.5, and a quick ratio of 1.0 at the end of each calendar year until the bonds mature. At December 31, 20Y6, the three measures were computed as follows: 1. Current assets: Cash...................................... 102,000 Temporary investments.................... 48,000 Accounts and notes receivable (net)......... 120,000 Inventories................................ 36,000 Prepaid expenses.......................... 24,000 Intangible assets.......................... 124,800 Property, plant, and equipment............. 55,200 Total current assets (net)................ 510,000 Current liabilities: Accounts and short-term notes payable..... 96,000 Accrued liabilities.......................... 204,000 Total current liabilities.................. 300,000 Working capital............................. 210,000 2. Current ratio................................ 1.7 510,000 300,000 3. Quick ratio.............................................. 1.2 115,200 96,000 a. List the errors in the determination of the three measures of current position analysis. b. Is the company satisfying the terms of the bond indenture? Explain.arrow_forwardQw. 27. On January 1, 2022, Pipestone Corporation issued a four-year, $40,000, 7% bond. The interest is payable annually each December 31. The issue price was $38,672 based on an 8% effective interest rate. Pipestone uses the effective-interest amortization method. The 2023 interest expense is closest to .arrow_forwardMf2. On January 1, 2022. Sarasota Company purchased 12% bonds having a maturity value of $430,000 for $462,600.36. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2022, and mature January 1, 2027, with interest receivable December 31 of each year. Sarasota elected the fair value option for this held-for-collection investment. Prepare any entry necessary at December 31, 2022, assuming the fair value of the bonds is $464,400. (Round answers to 2 decimal places, e.g. 5,275.25. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.)arrow_forward
- M 10 Selected transactions on the books of Sheridan Corporation follow:May 1, 2023 Bonds payable with a par value of $720,000, dated January 1, 2023, are sold at 109 plus accrued interest.They are coupon bonds, bear interest at 11% (payable annually at January 1), and mature on January 1, 2033. (Use int exp as accrued) Dec. 31Adjusting entries are made to record the accrued interest on the bonds and the amortization of the proper amount of premium (use the straight-line method) Jan. 1, 2024Interest on the bonds is paid. April 1Par value bonds of $360,000 are repurchased at 105 plus accrued interest and are retired. (Bond premium is to be amortized only at the year-end, Dec. 31Adjusting entries are made to record the accrued interest on the bonds, and the proper amount of premium amortize(a) Assume that Sheridan follows ASPE. Prepare the journal entries for the transactions above. (Round answers to 0 decimal placesarrow_forwardQ 11 On January 1, 20x8, James Corporation issued $500,000, 10%, 5-year bonds, at 98. The bonds pay semiannual interest on January 1 and July 1. The company uses the straight-line method of amortization and has a calendar year end. The journal entry on July 1, 20x8 would include which of the following? Select one: a. Debit to Bond Interest Expense for $26,000 b. Debit to Bond Interest Expense for $25,000 c. Credit to cash for $26,000 d. None of the abovearrow_forwardPROBLEM 2: On January 1, 2020, Baymax Company purchased Mad Max Corporation, P1,000,000 12% bonds for P1,065,000, a price that yields 10%. The bonds pay interest semi-annually every January 1 and July 1 and they mature on January 1, 2024. At December 31, 2020, each P1,000,000 bond is selling at P1,055.42. A) Assuming that the securities are classified as debt investments at amortized cost, what is the carrying amount of the debt investment reported on December 31, 2020 statement of financial position? a) 1,000,000 b) 1,051,163 c) 1,055,000 d) 1,065,000 B) Assuming that the securities are classified as debt investments at fair value though profit or loss, what is the carrying amount of the debt investment reported on December 31, 2020 statement of financial position? a) 1,000,000 b) 1,051,163 c) 1,055,000 d) 1,065,000 C) Assuming that the securities are classified as debt investments at fair value through profit or loss, what is the interest revenue from the bond investment for…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_forwardPB6. LO 13.3Edward 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. July 1, 2018: entry to record issuing the bonds Dec. 31, 2018: entry to record payment of interest to bondholders Dec. 31, 2018: entry to record amortization of discountarrow_forwardE14.4 (LO 1) Celine Dion Company issued $600,000 of 10%, 20-year bonds on January 1, 2020, at 102. Interest is payable semiannually on July 1 and January 1. Dion Company uses the straight-line method of amortization for bond premium or discount.Instructions Prepare the journal entries to record the following. a. The issuance of the bonds. b. The payment of interest and the related amortization on July 1, 2020. c. The accrual of interest and the related amortization on December 31, 2020.arrow_forward
- Kk.371. Bonds Issued at a Discount (Effective Interest) Sicily Corporation issued $1,250,000 in 7% bonds (payable on December 31, 2032) on December 31, 2022, for $1,125,000. Interest is paid on June 30 and December 31. The market rate of interest is 9%. Required: Prepare the amortization table through December 31, 2024, using the effective interest rate method. If required, round your answers to the nearest dollar.arrow_forwardYa.4 On January 1, 2019, Bradley, Inc., issued 12% bonds with a face amount of $66 million, dated January 1. The bonds mature in 2040 (20 years). The market yield for bonds of similar risk and maturity is 12%. Interest is paid semiannually. Instructions 1. Determine the price of the bonds at January 1, 2019, and prepare the journal entry to record their issuance by Bradley. 2. Assume the market rate was 8,5%. Determine the price of the bonds at January 1, 2018, and prepare the journal entry to record their issuance by Bradley.arrow_forwardProblem 12:On June 30, 2019, King Company had outstanding 9%, P5,000,000 face value bonds maturing on June 30, 2024. Interest is payable semiannually every June 30 and December 31. On June 30, 2019, after amortization was recorded for the period, the unamortized bond premium and bond issue cost were P30, 000 and P50, 000, respectively. On that date, King Company acquired all its outstanding bonds on the open market at 98 and retired them.On June 30, 2019, what amount should King Company recognize as gain before tax on redemption of bonds?arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Corporate Financial AccountingAccountingISBN:9781305653535Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning