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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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ExerciseInterest Payments and Interest Expense for Bonds (Straight Line)

On January 1, 2020, Harrington Corporation sold $425,000 of 15-year, 11% bonds. The bonds sold for $395,000 and pay interest semiannually on June 30 and December 31.

Required:

  1. Prepare the journal entry to record the sale of the bonds.
  2. Calculate the amount of the semiannual interest payment.
  3. Prepare the entry at June 30, 2020, to recognize the payment of interest and interest expense.
  4. Calculate the annual interest expense for 2020.

To determine

(a)

Introduction:

A bond is long term liability wherein the issuer is entitled to pay the face value of the bond at the time of maturity and make interest payments periodically. It is a breakdown of large debt to borrow as it may be too large for an individual lender.

To record:

Journal entry for the issuance of bonds.

Explanation

Given:

Bonds with face value of $425,000 sold for $395,000 of 15 year at 11% rate.

The face value of bonds issued is recorded as bonds payable and any premium or discount on issue of bonds is recorded in separate “Premium on Bonds Payable” or “Discount on Bonds Payable” account whereas in case of issuance of bonds at par it is a regular journal entry where cash (asset) increased along with Bonds Payable (long term liability)...

To determine

(b)

Introduction:

A bond is long term liability wherein the issuer is entitled to pay the face value of the bond at the time of maturity and make interest payments periodically. It is a breakdown of large debt to borrow as it may be too large for an individual lender.

To calculate:

Semi-annual interest payable on bonds.

To determine

(c)

Introduction:

A bond is long term liability wherein the issuer is entitled to pay the face value of the bond at the time of maturity and make interest payments periodically. It is a breakdown of large debt to borrow as it may be too large for an individual lender.

To record:

Journal entry for the recognizing interest expense and interest payment on bonds.

To determine

(d)

Introduction:

A bond is long term liability wherein the issuer is entitled to pay the face value of the bond at the time of maturity and make interest payments periodically. It is a breakdown of large debt to borrow as it may be too large for an individual lender.

To calculate:

Interest Expense for year 2020.

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