Financial and Managerial Accounting
Financial and Managerial Accounting
7th Edition
ISBN: 9781259726705
Author: John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
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Chapter 10, Problem 2PSA

1.

To determine

Journal entry to record the bonds’ issuance.

1.

Expert Solution
Check Mark

Explanation of Solution

Issue of bonds at discount on January 1, 2017

Date

Account Title and Explanation

Post.

Ref.

Debit

($)

Credit

($)

January 1

Cash

3,456,448

Discount on bonds payable

543,552

Bonds payable

4,000,000

(To record the sold bonds at discount)

  • Cash account is the assets account. Since the cash is received, the value of assets is increased. So, debit the credit the cash account.
  • Discount on bonds payable account is the liabilities account. Here, at the time of issue of the bonds discount has been given which decrease the liabilities of the company. So, debit the discount on bonds payable account.
  • Bonds payable account is the liabilities account. Bonds has been sold, which increases the liabilities of the company. So, credit the bonds payable account.

2.

(a)

To determine

Cash payment, straight line amortization and bonds interest expense.

(a)

Expert Solution
Check Mark

Explanation of Solution

Given,
Amount of bond is $4,000,000.
Rate of interest is 6%.
Time period is 0.5.

Formula to calculate the cash at the time of issue of bond,

   Cashpayment=Bondvalue×Rateofinterest×Timeperiod

Substitute, $4,000,000 for the bond value, 6% for the rate on interest and 0.5 for time period.

   Cashpayment=$4,000,000×6%×0.5 =$120,000

Hence, cash payment is $120,000.

(b)

Given,
Par value of bond is $4,000,000.
Issued price of bond is $3,456,448.
Number of semiannual period is 30.

Formula to calculate the straight line discount amortization,

   Amortization(straightlinediscount)= Discountonbond Numberofsemiannualperiod

Substitute, $543,552 for the discount on bond and 30 for number of semiannual period,

   Amortization(straightlinediscount)= $543,552 30semiannualperiod = $543,552 30semiannualperiod =$18,118

Hence, amortization is $18,118.

Working note:

Calculation of discount on bond,

   Discountonbond=ParvalueofbondIssuedpriceofbond =$4,000,000-$3,456,448 =$543,552

(c)

Given,
Cash payment is $120,000.
Amortization expense is $18,118.

Formula to calculate bonds interest payment expense,

   Bondsinterestexpense=Cashpayment+Amortization

Substitute, $120,000 for cash payment and $18,118 for amortization,

   Bondsinterestexpense=$120,000+$18,118 =$138,118

Hence, bonds interest expense is $138,118.

3.

To determine

Total amount of interest payable on bond.

3.

Expert Solution
Check Mark

Explanation of Solution

Particulars

Amounts

($)

30 Regular outlays of $120,000

3,600,000

Par value at maturity

4,000,000

Net repaid

7,600,000

Less: money borrowed

3,456,448

Bond interest expense

4,143,552

Table (2)

Hence, total bond interest expense is $4,143,552.

4.

To determine

First two year of an amortization table.

4.

Expert Solution
Check Mark

Explanation of Solution

End of semiannual period

Unamortized

Discount

($)

Carrying value

($)

January 1, 2017

543,552

3,456,448

June 30, 2017

525,434

3,474,566

December 31, 2017

507,316

3,492,684

June 30 ,2018

489,198

3,510,802

December 31, 2018

471,080

3,528,920

Table (3)

5.

To determine

Journal entry to record the first two interest payment.

5.

Expert Solution
Check Mark

Explanation of Solution

Payment of interest on June 30, 2017

Date

Account Title and Explanation

Post.

Ref.

Debit

($)

Credit

($)

June 30

Bonds interest expense

138,118

Discount on bonds payable

18,116

Cash

120,000

(To record the paid semiannual interest and record amortization)

Table (4)

  • Bonds interest account is an expense account. Interest has been paid by the company which increases the liabilities of the company. So, debit the bonds interest expense account
  • Discount on bonds payable account is the liabilities account. Here, at the time of issue of the bonds discount has been given which increases the liabilities of company. So, credit the discount on bonds payable account.
  • Cash is an asset account. Since the Cash is paid, the value of assets is decreased. So, credit the Cash account.

Payment of interest on December 31, 2017

Date

Account Title and Explanation

Post.

Ref.

Debit

($)

Credit

($)

Dec 31

Bonds interest expense

138,118

Discount on bonds payable

18,116

Cash

120,000

(To record the paid semiannual interest and record amortization)

Table (5)

  • Bonds interest account is an expense account. Interest has been paid by the company which increases the liabilities of the company. So, debit the bonds interest expense account
  • Discount on bonds payable account is the liabilities account. Here, at the time of issue of the bonds discount has been given which increases the liabilities of company. So, credit the discount on bonds payable account.
  • Cash is an asset account. Since the cash is paid, the value of assets is decreased. So, credit the Cash account.

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Chapter 10 Solutions

Financial and Managerial Accounting

Ch. 10 - Prob. 6DQCh. 10 - Prob. 7DQCh. 10 - Prob. 8DQCh. 10 - Prob. 9DQCh. 10 - Prob. 10DQCh. 10 - What is the issue price of a $2,000 bond sold at...Ch. 10 - Prob. 12DQCh. 10 - Prob. 13DQCh. 10 - Prob. 14DQCh. 10 - Prob. 15DQCh. 10 - Prob. 16DQCh. 10 - Prob. 17DQCh. 10 - Prob. 18DQCh. 10 - Prob. 19DQCh. 10 - Prob. 20DQCh. 10 - Prob. 1QSCh. 10 - Prob. 2QSCh. 10 - Prob. 3QSCh. 10 - Prob. 4QSCh. 10 - Prob. 5QSCh. 10 - Prob. 6QSCh. 10 - Recording bond issuance and discount amortization...Ch. 10 - Prob. 8QSCh. 10 - Prob. 9QSCh. 10 - Prob. 10QSCh. 10 - Prob. 11QSCh. 10 - Prob. 12QSCh. 10 - Prob. 13QSCh. 10 - Prob. 14QSCh. 10 - Prob. 15QSCh. 10 - Prob. 16QSCh. 10 - Prob. 17QSCh. 10 - Prob. 18QSCh. 10 - Prob. 19QSCh. 10 - Prob. 20QSCh. 10 - Prob. 1ECh. 10 - Prob. 2ECh. 10 - Prob. 3ECh. 10 - Prob. 4ECh. 10 - Prob. 5ECh. 10 - Prob. 6ECh. 10 - Prob. 7ECh. 10 - Prob. 8ECh. 10 - Prob. 9ECh. 10 - Prob. 10ECh. 10 - Prob. 11ECh. 10 - Prob. 12ECh. 10 - Prob. 13ECh. 10 - Prob. 14ECh. 10 - Prob. 15ECh. 10 - Prob. 16ECh. 10 - Prob. 17ECh. 10 - Prob. 18ECh. 10 - Prob. 19ECh. 10 - Prob. 20ECh. 10 - Prob. 1PSACh. 10 - Prob. 2PSACh. 10 - Prob. 3PSACh. 10 - Prob. 4PSACh. 10 - Prob. 5PSACh. 10 - Prob. 6PSACh. 10 - Prob. 7PSACh. 10 - Prob. 8PSACh. 10 - Prob. 9PSACh. 10 - Prob. 10PSACh. 10 - Prob. 11PSACh. 10 - Prob. 1PSBCh. 10 - Prob. 2PSBCh. 10 - Prob. 3PSBCh. 10 - Prob. 4PSBCh. 10 - Prob. 5PSBCh. 10 - Prob. 6PSBCh. 10 - Prob. 7PSBCh. 10 - Prob. 8PSBCh. 10 - Prob. 9PSBCh. 10 - Problem 10-10BB Effective Interest: Amortization...Ch. 10 - Prob. 11PSBCh. 10 - Prob. 10SPCh. 10 - Prob. 1BTNCh. 10 - Prob. 2BTNCh. 10 - Prob. 3BTNCh. 10 - Prob. 4BTNCh. 10 - Prob. 5BTNCh. 10 - Prob. 6BTNCh. 10 - Prob. 7BTNCh. 10 - Prob. 8BTNCh. 10 - Prob. 9BTN
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