Introduction: When bonds are issued at par, cash is debited and bonds payable is credited for the bond’s par value.Bonds are issued at a discount when the contract price is less than the market price, making the issue price less than par.
To determine: Prepare
Answer to Problem 8PSA
The time of issuance of bond on discount.
Explanation of Solution
Date | Particular | Debit | Credit |
01/01/2016 | Cash | ||
Discount on bonds payable | |||
Bonds payable | |||
(Being bonds sold at discount) |
Computation of discount is as follows:
Introduction: When bonds are issued at par, cash is debited and bonds payable is credited for the bond’s par value.Bonds are issued at a discount when the contract price is less than the market price, making the issue price less than par.
To determine: Total bond interest expenses to be recognized over the bonds life.
Answer to Problem 8PSA
The total bond interest expense to be recognized over the life of bond is
Explanation of Solution
Introduction: When bonds are issued at par, cash is debited and bonds payable is credited for the bond’s par value.Bonds are issued at a discount when the contract price is less than the market price, making the issue price less than par.
To determine: First two years amortization table.
Answer to Problem 8PSA
First two years amortization table, amount check is
Explanation of Solution
Semi Annual Period End | Unamortized Discount | Carrying Value |
01/0 1/2016 | ||
06/30/2016 | ||
12/31/2016 | ||
06/30/2017 | ||
12/31/2017 | ||
30/06/2018 | ||
31/12/2018 | ||
30/06/2019 | ||
31/12/2019 |
Straight-line discount amortization =
=
Introduction: When bonds are issued at par, cash is debited and bonds payable is credited for the bond’s par value.Bonds are issued at a discount when the contract price is less than the market price, making the issue price less than par.
To determine: Prepare Journal Entry.
Answer to Problem 8PSA
Journal Entries of First two interest payment
Explanation of Solution
Date | Particular | Debit | Credit |
30/06/2016 | Interest Expense | ||
Discount on bonds payable | |||
Cash | |||
(Being semiannual interest paid and discount on bonds amortized) | |||
31/12/2016 | Interest Expense | ||
Discount on bonds payable | |||
Cash | |||
(Being semiannual interest paid and discount on bonds amortized) |
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Chapter 10 Solutions
Financial Accounting: Information for Decisions
- Edward Inc. issued bonds with a $500,000 face value, 10% interest rate, and a 4-year term on July 1, 2018 and received $480,000. Interest is payable semiannually. The discount is amortized using the straight-line method. Prepare journal entries for the following transactions. A. July 1, 2018: entry to record issuing the bonds B. Dec. 31, 2018: entry to record payment of interest to bondholders C. Dec. 31, 2018: entry to record amortization of discountarrow_forwardVolunteer Inc. issued bonds with a $500,000 face value, 10% interest rate, and a 4-year term on July 1, 2018 and received $540,000. Interest is payable annually. The premium is amortized using the straightline method. Prepare journal entries for the following transactions. A. July 1, 2018: entry to record issuing the bonds B. June 30, 2019: entry to record payment of interest to bondholders C. June 30, 2019: entry to record amortization of premium D. June 30, 2020: entry to record payment of interest to bondholders E. June 30, 2020: entry to record amortization of premiumarrow_forwardDixon Inc. issued bonds with a $500,000 face value, 10% interest rate, and a 4-year term on July 1, 2018 and received $480,000. Interest is payable annually. The discount is amortized using the straight-line method. Prepare journal entries for the following transactions. A. July 1, 2018: entry to record issuing the bonds B. June 30, 2019: entry to record payment of interest to bondholders C. June 30, 2019: entry to record amortization of discount D. June 30, 2020: entry to record payment of interest to bondholders E. June 30, 2020: entry to record amortization of discountarrow_forward
- Aggies Inc. issued bonds with a $500,000 face value, 10% interest rate, and a 4-year term on July 1, 2018, and received $540,000. Interest is payable semi-annually. The premium is amortized using the straight-line method. Prepare journal entries for the following transactions. A. July 1, 2018: entry to record issuing the bonds B. Dec. 31, 2018: entry to record payment of interest to bondholders C. Dec. 31, 2018: entry to record amortization of premiumarrow_forwardWilbury Corporation issued 1 million of 13.5% bonds for 985,071.68. The bonds are dated and issued October 1, 2019, are due September 30, 2020, and pay interest semiannually on March 31 and September 30. Assume an effective yield rate of 14%. Required: 1. Prepare a bond interest expense and discount amortization schedule using the straight-line method. 2. Prepare a bond interest expense and discount amortization schedule using the effective interest method. 3. Prepare adjusting entries for the end of the fiscal year December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. If income before interest and income taxes of 30% in 2020 is 500,000, compute net income under each alternative. 5. Assume the company retired the bonds on June 30, 2020, at 98 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight line method of amortization b. effective interest method of amortization 6. Compute the companys times interest earned (pretax operating income divided by interest expense) for 2020 under each alternative.arrow_forwardExercise Bonds with Annual Interest Payments Kiwi Corporation issued at par $350,000, 9% bonds on January 1, 2020. Interest is paid annually on December 31. The principal and the final interest payment are due on December 31, 2021. Required: Prepare the entry to recognize the issuance of the bonds. Prepare the journal entry for December 31, 2020. Prepare the journal entry to record repayment of the principal on December 31, 2021. CONCEPTUAL CONNECTIONHow would the interest expense for 2020 change if the bonds had been issued at a premium?arrow_forward
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