a (1) Explanation Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations. Discount on bonds payable: It occurs when the bonds are issued at a low price than the face value. Effective-interest amortization method: Effective-interest amortization method it is an amortization model that apportions the amount of bond discount or premium based on the market interest rate. In this method, first, interest expense is calculated based on the current carrying amount and market interest rate and cash interest payment is calculated based on the face value amount and stated interest rate and then, the different between the cash interest payment and interest expense is amortized as a decrease to the discount or premium. Journalize sale of bonds. Date Account Title and Explanation Post Ref. Debit ($) Credit ($) Cash 43,495,895 a (2) To determine Journalize first semiannual interest payment and amortization of discount on bonds. a (3) To determine Journalize second semiannual interest payment and amortization of discount on bonds. b. To determine Calculate the amount of bond interest expense for first year. c. To determine Explain the reason why the company was able to issue the bonds for $43,495,895 rather than $50,000,000.

14th Edition

ISBN: 9781305088436

Author: Carl Warren, Jim Reeve, Jonathan Duchac

Publisher: Cengage Learning

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Question

Chapter 14, Problem 23E

a (1)

To determine

Journalize the sale of the bonds.

a (2)

To determine

Journalize first semiannual interest payment and amortization of discount on bonds.

a (3)

To determine

Journalize second semiannual interest payment and amortization of discount on bonds.

To determine

Calculate the amount of bond interest expense for first year.

To determine

Explain the reason why the company was able to issue the bonds for $43,495,895 rather than $50,000,000.

Expert Solution & Answer

Chapter 14 Solutions

Financial Accounting

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Knowledge Booster

Journalize the sale of the bonds.

Solution Summary: The author explains the effective-interest amortization method, which apportions the amount of bond discount or premium based on the market interest rate.

Journalize the sale of the bonds.

Journalize first semiannual interest payment and amortization of discount on bonds.

Journalize second semiannual interest payment and amortization of discount on bonds.

Calculate the amount of bond interest expense for first year.

Explain the reason why the company was able to issue the bonds for $43,495,895 rather than $50,000,000.

Chapter 14 Solutions