Financial and Managerial Accounting: Information for Decisions
Financial and Managerial Accounting: Information for Decisions
6th Edition
ISBN: 9780078025761
Author: John J Wild, Ken Shaw Accounting Professor, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
Question
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Chapter 10, Problem 3PSA

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, 2015

Date Account Title and Explanation Post.
Ref.
Debit
($)
Credit
($)
January 1 Cash   4,859,980  
  Premium on bonds payable     895,980
  Bonds payable     4,000,000
  (To record the sold bonds at premium)      

Table (1)

• Cash account is the assets account. Since the cash is received, the value of assets is increased. So, debit the credit the cash account.

• Premium on bonds payable account is the liabilities account. Here, at the time of issue of the bonds premium has been given which increase the liabilities of the company. So, credit the premium 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.

To determine

Cash payment, straight line amortization and bonds interest expense.

2.

Expert Solution
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Explanation of Solution

(a)

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 account is $120,000.

(b)

Given,

Par value of bond is $4,000,000.

Issued price of bond is $4,895,980.

Number of semiannual period is 30.

Formula to calculate the straight line discount amortization:

Amortization(straightlinediscount)=DiscountonbondNumberofsemiannualperiod

Substitute $895,980 for the discount on bond and 30 for number of semiannual period,

Amortization(straightlinediscount)=$895,98030semiannualperiod=$895,98030semiannualperiod=$29,866

Hence, amortization is $29,866.

Working note:

Calculation of discount on bond:

Discountonbond=IssuedpriceofbondParvalueofbond=$4,895,980$4,000,000=$895,980

(c)

Given,

Cash payment is $120,000.

Amortization expense is $29,866.

Formula to calculate bonds interest payment expense:

Bondsinterestexpense=CashpaymentAmortization

Substitute $120,000 for cash payment and $29,866 for amortization,

Bondsinterestexpense=$120,000$29,866=$90,134

Hence, bonds interest expense is $90,134.

3.

To determine

Total amount of interest payable on bond.

3.

Expert Solution
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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 4,895,980
Bond interest expense 2,704,020

Table (2)

Hence, total bond interest expense is $2,704,202.

4.

To determine

First two year of an amortization table.

4.

Expert Solution
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Explanation of Solution

End of semiannual period Unamortized
Discount
($)
Carrying value
($)
January 1, 2017 895,980 4,895,980
June 30, 2017 866,114 4,866,114
December 31, 2017 836,248 4,836,248
June 30, 2018 806,382 4,806,382
December 31, 2018 776,516 4,775,516

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, 2015

Date Account Title and Explanation Post.
Ref.
Debit
($)
Credit
($)
June 30 Bonds interest expense   90,134  
  Premium on bonds payable   29,866  
  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.

• Premium on bonds payable account is the liabilities account. Here, at the time of issue of the bonds premium has been given which increases the liabilities of company. Now premium on bonds payable has been paid which decrease the liability. So, debit the premium 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, 2015

Date Account Title and Explanation Post.
Ref.
Debit
($)
Credit
($)
Dec 31 Bonds interest expense   90,134  
  Premium on bonds payable   29,866  
  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.

• Premium on bonds payable account is the liabilities account. Here, at the time of issue of the bonds premium has been given which increases the liabilities of company. Now premium on bonds payable has been paid which decrease the liability. So, debit the premium 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: Information for Decisions

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 - Prob. 7QSCh. 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 - Prob. 10PSBCh. 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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