GEN COMBO LOOSELEAF INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD

9th Edition

ISBN: 9781260089042

Author: J. David Spiceland

Publisher: McGraw-Hill Education

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Textbook Question

Chapter 14, Problem 14.9E

Issuance of bonds; effective interest; amortization schedule; financial statement effects

• LO14–2

When Patey Pontoons issued 6% bonds on January 1, 2018, with a face amount of $600,000, the market yield for bonds of similar risk and maturity was 7%. The bonds mature December 31, 2021 (4 years). 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 journal entry to record their issuance by Patey on January 1, 2018.
3. Prepare an amortization schedule that determines interest at the effective rate each period.
4. Prepare the journal entry to record interest on June 30, 2018.
5. What is the amount(s) related to the bonds that Patey will report in its balance sheet at December 31, 2018?
6. What is the amount(s) related to the bonds that Patey will report in its income statement for the year ended December 31, 2018? (Ignore income taxes.)
7. Prepare the appropriate journal entries at maturity on December 31, 2021.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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Chapter 14, Problem 14.8E

Chapter 14, Problem 14.10E

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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 ctrt

Scenario 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?

Question 2: A company issues 8%, two-year bonds on December 31, 2018, with a par value of $20,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 6%, which implies a selling price of 103% or $20,600. (a) Prepare an amortization table for these bonds; use the straight-line method to amortize the premium. Then prepare journal entries to record b) the issuance of bonds on december 31,2018 (c) The first through fourth interest payments on each June 30 and December 31; and (d) The maturity of the bond on December 31, 2020.

Chapter 14 Solutions

GEN COMBO LOOSELEAF INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD

Ch. 14 - How is periodic interest determined for...Ch. 14 - As a general rule, how should long-term...Ch. 14 - How are bonds and notes the same? How do they...Ch. 14 - What information is contained in a bond indenture?...Ch. 14 - On January 1, 2018, Brandon Electronics issued 85...Ch. 14 - How is the price determined for a bond (or bond...Ch. 14 - A zero-coupon bond pays no interest. Explain.Ch. 14 - Prob. 14.8Q Ch. 14 - Compare the two commonly used methods of...Ch. 14 - Prob. 14.10Q

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Solution Summary: The author explains how to calculate the present value of interest payments of Incorporation PP.

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