Chapter 14, Problem 1E

Requirement-1:

To determine

To calculate:

The amount of interest on bonds to be paid every six months

Answer to Problem 1E

Solution:

The amount of interest on bonds to be paid every six months is $153,000

Explanation of Solution

Explanation:

The amount of interest on bonds to be paid every six months is calculated as follows:

Bonds Par Value is $3,400,000
Annual interest rate on bonds is 9%
Semiannual interest rate on bonds shall be 9%/2 = 4.5%

Hence, the amount of interest on bonds to be paid every six months = 3,400,000*4.5% = $153,000

Conclusion

Conclusion:

The amount of interest on bonds to be paid every six months is $153,000

Requirement-2:

To determine

To prepare :

The journal entries for issuance and interest payment of bonds

Answer to Problem 1E

Solution:

The journal entries for issuance and interest payment of bonds are as follows:

(a) Journal entry for issuance of bonds:
Date	Account titles	Debit	Credit
Jan. 1, 2015	Cash	$ 3,400,000
	Bonds payable		$3,400,000
(b) Journal entry for the first interest payment
Date	Account titles	Debit	Credit
Jun. 30, 2015	Interest Expense	$ 153,000
	Cash		$ 153,000
(b) Journal entry for the Second interest payment
Date	Account titles	Debit	Credit
Dec. 31, 2015	Interest Expense	$ 153,000
	Cash		$ 153,000

Explanation of Solution

Explanation:

The journal entries for issuance and interest payment of bonds are explained as follows:

(a) Journal entry for issuance of bonds:
Date	Account titles	Debit	Credit
Jan. 1, 2015	Cash	$ 3,400,000
	Bonds payable		$3,400,000
	(Being bonds issued at par for cash)
(b) Journal entry for the first interest payment
Date	Account titles	Debit	Credit
Jun. 30, 2015	Interest Expense (3400000*9%/2)	$ 153,000
	Cash		$ 153,000
	(Being interest on bonds paid)
(b) Journal entry for the Second interest payment
Date	Account titles	Debit	Credit
Dec. 31, 2015	Interest Expense (3400000*9%/2)	$ 153,000
	Cash		$ 153,000
	(Being interest on bonds paid)

Conclusion

Conclusion:

The amount of interest on bonds to be paid every six months is $153,000

Requirement-3:

To determine

To prepare :

The journal entries for issuance of bonds at a price 98 and 102

Answer to Problem 1E

Solution:

The journal entries for issuance of bonds are as follows:

(a) Journal entry for issuance of bonds at 98:
Date	Account titles	Debit	Credit
Jan. 1, 2015	Cash	$ 3,332,000
	Discount on bonds payable	$ 68,000
	Bonds payable		$ 3,400,000
(b) Journal entry for issuance of bonds at 102:
Date	Account titles	Debit	Credit
Jan. 1, 2015	Cash	$ 3,468,000
	Premium on bonds payable		$ 68,000
	Bonds payable		$ 3,400,000

Explanation of Solution

Explanation:

The journal entries for issuance of bonds are explained as follows:

(a) Journal entry for issuance of bonds at 98:
Date	Account titles	Debit	Credit
Jan. 1, 2015	Cash (3400000*98/100)	$ 3,332,000
	Discount on bonds payable (3400000-3332000)	$ 68,000
	Bonds payable		$ 3,400,000
	(Being bonds issued at discount for cash)
(b) Journal entry for issuance of bonds at 102:
Date	Account titles	Debit	Credit
Jan. 1, 2015	Cash (3400000*102/100)	$ 3,468,000
	Premium on bonds payable (3468000-3400000)		$ 68,000
	Bonds payable		$ 3,400,000
	(Being bonds issued at premium for cash)