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Textbook Question
Chapter 14, Problem 7E
Exercise 14*7
Straight-Line:
Amortization of bond premium
Quatro Co. issues bonds dated January 1,2015, with a par value of $400,000. The bonds’ annual contract rate is 13%, and interest is paid semiannually on June 30 and December 31. The bonds mature in three years. The annual market rate at the date of issuance is 12%, and the bonds are sold for $409,850.
- What is the amount of the premium on these bonds at issuance?
- How much total bond interest expense will be recognized over the life of these bonds?
- Prepare an amortization table like the one in Exhibit I4.l l for these bonds; use the straight-line method to amortize the premium. ’ Bond par value (of S l(X).(MM)) plus unamortized premium. J Adjusted for rounding
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Students have asked these similar questions
PROBLEM 1
On December 31, 2018, Edmand Inc. issued $750,000of 11% five-year bonds for $722,400, yielding an
effective interest rate of 12%. Semi annual interest is payable on June 30 and December 31 each year.
The firm uses effective interest method to amortize the discount.
a) Prepare Amortization schedule showing the necessary information for the first two interest periods. Round
amounts to the nearest dollar.
b)
Prepare the journal entry for the bond issuance on December 31, 2018.
c) Prepare the journal entry to record bond interest expense and discount amortization at June 30 2019.
d) Prepare the journal entry to record the bond interest expense and discount amortization at December 31,
2019
Problem No. 4
On December 31, 2014, YEN Inc. issued a 3-year P4,500,000 serial bonds payable with 10% interest payable every December 31
starting in 2015. The P4,500,000 bonds is payable through equal annual installment every December 31. The effective interest rate of
the bonds is 8%.
8. What is the initial measurement of the bonds payable on December 31, 2014?
9. What is the interest expense for the year ended December 31, 2015?
10. What is the carrying value of bonds payable on December 31, 2016?
Problem 1
Hurts Company issued $500,000, 25-year, 6% bonds on 1/1/17. These bonds pay interest semi-annually on
June 30 and December 31. On the issue date, the market rate of interest was 5%, resulting in a price of 101.5.
1) Determine the issue price of the bond
2) Complete the Amortization Schedule through 12/31/2018.
3) Prepare all necessary bond journal entries for 2017.
4) How would the bond be reported on the balance sheet on December 31, 2018?
5) Record the retirement of the bonds on January 1, 2019, assuming that all of the bonds were called in at a
price of 103.
Chapter 14 Solutions
FUND.ACCT.PRIN -ONLINE ONLY >I<
Ch. 14 - Prob. 1DQCh. 14 - Prob. 2DQCh. 14 - Prob. 3DQCh. 14 - Prob. 4DQCh. 14 - Prob. 5DQCh. 14 - Prob. 6DQCh. 14 - Prob. 7DQCh. 14 - Prob. 8DQCh. 14 - Prob. 9DQCh. 14 - Prob. 10DQ
Ch. 14 - Prob. 11DQCh. 14 - Prob. 12DQCh. 14 - Prob. 13DQCh. 14 - Prob. 14DQCh. 14 - Prob. 15DQCh. 14 - Prob. 16DQCh. 14 - Prob. 17DQCh. 14 - Prob. 18DQCh. 14 - Prob. 19DQCh. 14 - Prob. 20DQCh. 14 - Prob. 1QSCh. 14 - Prob. 2QSCh. 14 - Prob. 3QSCh. 14 - Prob. 4QSCh. 14 - Prob. 5QSCh. 14 - Prob. 6QSCh. 14 - Prob. 7QSCh. 14 - Prob. 8QSCh. 14 - Prob. 9QSCh. 14 - Prob. 10QSCh. 14 - Prob. 11QSCh. 14 - Prob. 12QSCh. 14 - Prob. 13QSCh. 14 - Prob. 14QSCh. 14 - Prob. 15QSCh. 14 - Prob. 16QSCh. 14 - Prob. 17QSCh. 14 - Prob. 18QSCh. 14 - Prob. 19QSCh. 14 - Prob. 20QSCh. 14 - Prob. 1ECh. 14 - Prob. 2ECh. 14 - Prob. 3ECh. 14 - Prob. 4ECh. 14 - Prob. 5ECh. 14 - Prob. 6ECh. 14 - Exercise 14*7 Straight-Line: Amortization of bond...Ch. 14 - Prob. 8ECh. 14 - Prob. 9ECh. 14 - Prob. 10ECh. 14 - Prob. 11ECh. 14 - Prob. 12ECh. 14 - Prob. 13ECh. 14 - Prob. 14ECh. 14 - Prob. 15ECh. 14 - Prob. 16ECh. 14 - Prob. 17ECh. 14 - Prob. 18ECh. 14 - Prob. 19ECh. 14 - Prob. 20ECh. 14 - Prob. 1APSACh. 14 - Prob. 2APSACh. 14 - Prob. 3APSACh. 14 - Prob. 4APSACh. 14 - Prob. 5APSACh. 14 - Prob. 6APSACh. 14 - Prob. 7APSACh. 14 - Prob. 8APSACh. 14 - Prob. 9APSACh. 14 - Prob. 10APSACh. 14 - Prob. 11APSACh. 14 - Prob. 1BPSBCh. 14 - Prob. 2BPSBCh. 14 - Prob. 3BPSBCh. 14 - Prob. 4BPSBCh. 14 - Prob. 5BPSBCh. 14 - Prob. 6BPSBCh. 14 - Prob. 7BPSBCh. 14 - Prob. 8BPSBCh. 14 - Prob. 9BPSBCh. 14 - Prob. 10BPSBCh. 14 - Problem 14-11EC Capital lease accounting C3 Braun...Ch. 14 - Prob. 14SPCh. 14 - Prob. 1BTNCh. 14 - Prob. 2BTNCh. 14 - Prob. 3BTNCh. 14 - Prob. 4BTNCh. 14 - Prob. 5BTNCh. 14 - Prob. 6BTNCh. 14 - Prob. 7BTNCh. 14 - Prob. 8BTNCh. 14 - Samsung (w ww.Sanisung.com). Apple, and Google are...
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- Cornerstone Exercise (Appendix 9A) Bond Issue Price On January 1, 2021, Callahan Auto issued $900,000 of 9%, 10-year bonds. Interest is payable semiannually on June 30 and December 31. Required: What is the issue price if the bonds are sold to yield 8%? (Note: Round to the nearest dollar.)arrow_forwardWilbury Corporation issued 1 million of 13.5% bonds for 985,071.68. The bonds are dated and issued October 1, 2019, are due September 30, 2020, and pay interest semiannually on March 31 and September 30. Assume an effective yield rate of 14%. Required: 1. Prepare a bond interest expense and discount amortization schedule using the straight-line method. 2. Prepare a bond interest expense and discount amortization schedule using the effective interest method. 3. Prepare adjusting entries for the end of the fiscal year December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. If income before interest and income taxes of 30% in 2020 is 500,000, compute net income under each alternative. 5. Assume the company retired the bonds on June 30, 2020, at 98 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight line method of amortization b. effective interest method of amortization 6. Compute the companys times interest earned (pretax operating income divided by interest expense) for 2020 under each alternative.arrow_forwardOn July 1, a company sells 8-year $250,000 bonds with a stated interest rate of 6%. If interest payments are paid annually, each interest payment will be ________. A. $120,000 B. $60,000 C. $7,500 D. $15,000arrow_forward
- Brief Exercise (Appendix 9A) Bond Issue Price On January 1, 2020, Ruby Inc. issued 3,000 $1,000 par value bonds with a staled rate of6% and a 10-year maturity. Interest is payable semiannually on June 30 and December 31. Required: What is the issue price if the bonds are sold to yield 8%? {Note: Round to nearest dollar.)arrow_forwardProblem No. 2 On January 1, 2014, WAYNE Inc. issued a 2-year, P4,000,000 bonds payable with 12% interest. The principal will be due at the end of the tem and the interest is payable semi-annually every June 30 and December 31. The effective interest rate of the bonds is 15%. The bonds were retired on July 1, 2015 at 95. 3. What is the interest expenso for the year ended December 31, 2014? 4. What is the gain/(loss) on retirement of bonds payable?arrow_forwardScenario 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?arrow_forward
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