Concept explainers
1.
Prepare
1.
Explanation of Solution
Bonds:
Bonds are long-term promissory notes that are issued by a company while borrowing money from investors to raise fund for financing the operations.
Prepare journal entries to record all transactions occurred during the period 2016, of Corporation D.
Date | Account titles and Explanation | Debit | Credit |
January 1, 2016 | Cash | $820,302 | |
Premium on bonds payable | $20,302 | ||
Bonds payable | $800,000 | ||
(To record issuance of bonds payable) | |||
February 28, 2016 | Interest expense (balancing figure) | $9,792 | |
Discount on bonds payable | $792 | ||
Cash | $9,000 | ||
(To record payment of interest expense) | |||
March 31, 2016 | Interest expense | $30,000 | |
Discount on convertible bonds | $2,500 | ||
Cash | $27,500 | ||
(To record payment of interest expense) | |||
May 1,2016 | Cash | $5,400 | |
Common stock warrants | $1,920 | ||
Common stock | $2,000 | ||
Additional paid in capital on common stock | $5,320 | ||
(To record detachable warrants of common stock) | |||
June 30, 2016 | Interest expense | $81,250 | |
Cash | $81,250 | ||
(To record payment of interest expense) | |||
June 30, 2016 | Interest expense | $41,015.10 | |
Premium on bonds payable | $2,984.90 | ||
Cash | $44,000 | ||
(To record payment of interest expense) | |||
September 30, 2016 | Interest expense | $30,000 | |
Discount on convertible bonds payable | $2,500 | ||
Cash | $27,500 | ||
(To record payment of interest expense) | |||
September 30, 2016 | Convertible bonds payable | $100,000 | |
Discount on convertible bonds payable | $2,500 | ||
Common stock | $30,000 | ||
Additional paid in capital - common stock | $67,500 | ||
(To record conversion of conversion of convertible bonds) | |||
November 1, 2016 | Interest expense | $6,810.98 | |
Premium on bonds payable | $522.35 | ||
Interest payable | $7,333.33 | ||
(To record payment of interest expense) | |||
November 1, 2016 | Bonds payable | $200,000 | |
Interest payable | $7,333.33 | ||
Premium on bonds payable | $3,806.92 | ||
Loss on bonds redemption | $10,193.08 | ||
Cash | $221,333.33 | ||
(To record retirement of bonds payable) | |||
December 31, 2016 | Interest expense | $81,250 | |
Cash | $81,250 | ||
(To record payment of interest expense) | |||
December 31, 2016 | Interest expense | $12,000 | |
Discount on convertible bonds | $1,000 | ||
Interest payable | $11,000 | ||
(To record payment of interest expense) | |||
December 31, 2016 | Interest expense | $8,160 | |
Discount on convertible bonds | $660 | ||
Interest payable | $7,500 | ||
(To record payment of interest expense) | |||
December 31, 2016 | Interest expense | $6,010.50 | |
Discount on notes payable | $6,010.50 | ||
(To record payment of interest expense) | |||
December 31, 2016 | Interest expense | $30,649.39 | |
Premium on bonds payable | $2,350.61 | ||
Cash | $33,000.00 | ||
(To record payment of interest expense) |
Table (1)
Working notes:
Calculate loss on bonds redemption.
Calculate unamortized premium as on 11/01/2016.
Particulars | Amount |
Unamortized premium on 1/1/2013 ($20,302 × 1÷ 4) | $5,075.50 |
Less: Amortized as on 6/30/2013 ($2,984.90 × 1 ÷ 4) | $746.23 |
Less: Amortized as on 11/1/2013 ($2,984.90 × 1 ÷ 4) | $522.35 |
Unamortized premium as on 11/1/2013 | $3,806.92 |
Table (2)
2.
Prepare long-term debt section of Corporation D‘s partial balance sheet as on 31st December 2016.
2.
Explanation of Solution
Notes payable:
Notes Payable is a written promise to pay a certain amount on a future date, with certain percentage of interest. Companies use to issue notes payable to meet short-term financing needs
Corporation D | ||
Long-Term Debt | ||
December 31, 2016 | ||
Particulars | Amount | Amount |
12.5% bonds payable (due 31st December 2018) | $1,300,000 | |
Add: 11% convertible bonds (due 31st March 2019) | $400,000 | |
Less: discount on bonds payable | $9,000 | $391,000 |
9% Bonds (detachable warrants) | $100,000 | |
Less: Discount on bonds payable | $2,508 | $97,492 |
11% Bonds payable (due 31st December 2019) | $600,000 | |
Add: Premium on bonds payable | $10,637.22 | $610,637.22 |
4 years non-interest bearing note | $80,000 | |
Less: Discount on notes payable | $13,884.50 | $66,115.50 |
Total long term liabilities | $2,465,244.72 |
Table (3)
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Chapter 14 Solutions
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