Financial and Managerial Accounting (Looseleaf) (Custom Package)
Financial and Managerial Accounting (Looseleaf) (Custom Package)
6th Edition
ISBN: 9781259754883
Author: Wild
Publisher: MCG
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Chapter 10, Problem 5PSA

1.

To determine

To prepare:

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
($)
Credit
($)
Jan 1 Cash   292,181  
  Discount on bonds payable   32,819  
  Bonds payable     325,000
  (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.

Working Notes:

Given,

Value of bonds is $325,000.

Market value of bonds is $292,181.

Calculate the amount of the discount on bonds payable:

Discountonbonds=ValueofbondMarketvalueofbond=$325,000$292,181=$32,819

2.

To determine

Net expense of interest on bond.

2.

Expert Solution
Check Mark

Explanation of Solution

Particulars Amounts
($)
Amount repaid:  
Interest payment 65,000
Add: Maturity value 325,000
Repaid amount 390,000
Less: Borrowed amount 292,181
Net expense of interest on bond 97,819

Table (2)

Hence, net expense interest on bond is $97,819.

Working notes:

Given,

Value of bond is $325,000.

Rate of interest is 5%.

Time period is 0.5.

Calculation of amount of the interest paid at semiannual period:

Interestamount=Valueofthebond×Rateofinterest×Timeperiod=$325,000×5%×0.5=$8,125

Calculation of amount of interest repaid:

Interestpayment=Interestsemiannualamount×Numberofpaymentperiod=$8,125×8=$65,000

3.

To determine

First two year of an amortization table.

3.

Expert Solution
Check Mark

Explanation of Solution

Prepare table for unamortized discount, and carrying value as follow:

End of semiannual period Unamortized
Discount ($)
Carrying value ($)
January 1, 2015 32,819 292,181
June 30, 2015 28,717 292,283
December 31, 2015 24,615 300,385
June 30, 2016 20,513 304,487
December 31, 2016 16,411 308,589

Table (3)

Hence, unamortized discount on December 31, 2016 is $16,411 and carrying value account is $308,589.

4.

To determine

To prepare:

Journal entry to record the first two interest payment.

4.

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   12,227  
  Discount on bonds payable     4,102
  Cash     8,125
  (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, 2015

Date Account Title and Explanation Post.
Ref.
Debit
($)
Credit
($)
Dec 31 Bonds interest expense   12,227  
  Discount on bonds payable     4,102
  Cash     8,125
  (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.

5.

To determine

Change affect the amount reported on legacy’s financial statement.

5.

Expert Solution
Check Mark

Explanation of Solution

• If the bonds are issued at the 4% instead of the 8%, then bonds will be issued at premium. As the rate of interest on account for 5% which is more than rate of return in the new market.

• The change in the market rate of interest increases the bond liability of the company in the balance sheet. But, the bond liability decreases gradually with amortization of the premium.

• In this case, the cash flow statement will show greater amount pertain to receipt of the cash during the year under the borrowing head.

Working note:

Given,

Total discount on bonds payable is $32,819.

Number of payment is 8.

Calculation of discount on bond payable on the first two bond expense:

Discountonbondpayable=TotaldiscountonbondpayableNumberofpayment=$32,8198=$4,102

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Chapter 10 Solutions

Financial and Managerial Accounting (Looseleaf) (Custom Package)

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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