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 5E
To determine

Bonds:

Bonds are a kind of the security which an investor invests in an entity for a specific period at a fixed interest rate. These bonds are issued at that time when entity needs huge amount of fund.

To prepare: Journal entry.

Expert Solution & Answer
Check Mark

Explanation of Solution

(a)

Issue of bonds at discount on December 31, 2017

Date Account title and Explanation Post. Ref. Debit ($) Credit ($)
Dec 31 Cash 188,000
Discount on bonds payable 12,000
Bonds payable 200,000
(to record the sold bonds at discount)

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.
  • 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.

(b)

Payment of interest on June 30, 2018

Date Account title and Explanation Post. Ref. Debit ($) Credit ($)
June 30 Bonds interest expense 8,000
Discount on bonds payable 3,000
Cash 5,000
(To record the paid semiannual interest and record amortization)

Table (2)

  • 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.

Working notes:

Given,
Unamortized discount on December 31, 2017 is $12,000.
Unamortized discount on June 30, 2018 is $9,000.
Bond value is $200,000.
Rate of interest is 5%.
Time period is 0.5.

Calculation of discount on bond payable,

   Discount on bonds payable=( Unamortized discount on December 31, 2017 Unamortized discount on June 30, 2017 ) =$12,000$9,000 =$3,000

Calculation of amount cash payment,

   Cash payment=Bond value×Rate of interest×Time period =$200,000×5%×0.5 =$5,000

Payment of interest on December 31, 2018

Date Account title and Explanation Post. Ref. Debit ($) Credit ($)
Dec 31 Bonds interest expense 8,000
Discount on bonds payable 3,000
Cash 5,000
(To record the paid semiannual interest and record amortization)

Table (3)

  • 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.

Working note:

Given,
Unamortized discount on June 30, 2018 is $9,000.
Unamortized discount on December 31, 2018 is $6,000.
Bond value is $200,000.
Rate of interest is 5%.
Time period is 0.5.

Calculation of discount on bond payable,

   Discount on bonds payable=( Unamortized discount on June 30, 2018 Unamortized discount on December31,2018 ) =$9,000$6,000 =$3,000

Calculation of amount cash payment,

   Cash payment=Bond value×Rate of interest×Time period =$200,000×5%×0.5 =$5,000

Payment of interest on June 30, 2019

Date Account title and Explanation Post. Ref. Debit ($) Credit ($)
June 30 Bonds interest expense 8,000
Discount on bonds payable 3,000
Cash 5,000
(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.

Working notes:

Given,
Unamortized discount on December 31, 2018 is $6,000.
Unamortized discount on June 30, 2019 is $3,000.
Bond value is $200,000.
Rate of interest is 5%.
Time period is 0.5.

Calculation of discount on bond payable,

   Discount on bonds payable=( Unamortized discount on December31,2018 Unamortized discount on June30,2019 ) =$6,000$3,000 =$3,000

Calculation of amount cash payment,

   Cash payment=Bond value×Rate of interest×Time period =$200,000×5%×0.5 =$5,000

Payment of interest on December 31, 2019

Date Account title and Explanation Post. Ref. Debit ($) Credit ($)
Dec 31 Bonds interest expense 8,000
Discount on bonds payable 3,000
Cash 5,000
(To record the paid semiannual interest and record amortization)

Table (6)

  • 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.

Working notes:

Given,
Unamortized discount on June 30, 2019 is $3,000.
Unamortized discount on December 31, 2019 is $0.
Bond value is $200,000.
Rate of interest is 5%.
Time period is 0.5.

Calculation of discount on bond payable,

   Discount on bonds payable=( Unamortized discount onJune30,2019 Unamortized discount on December31,2019 ) =$3,000$0 =$3,000

Calculation of amount cash payment,

   Cash payment=Bond value×Rate of interest×Time period =$200,000×5%×0.5 =$5,000

(c)

Sale of bonds at par on December31, 2018

Date Account title and Explanation Post. Ref. Debit ($) Credit ($)
Dec 31 Bonds payable 200,000
Cash 200,000
(To record the maturity and payment of bond)

Table (7)

  • Bonds payable is the liabilities account. Here, bonds are mature and paid. The liabilities of the company decreased. So, debit the bonds payable account
  • Cash account is the assets 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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