Gen Combo Looseleaf Financial And Managerial Accounting; Connect Access Card
Gen Combo Looseleaf Financial And Managerial Accounting; Connect Access Card
18th Edition
ISBN: 9781260149197
Author: williams
Publisher: MCG
bartleby

Concept explainers

Question
Book Icon
Chapter 10, Problem 9E

a)

To determine

Prepare the journal entries to record the issuance of the bonds on April 1, 2018

a)

Expert Solution
Check Mark

Explanation of Solution

Bonds: Bonds are a kind of interest bearing notes payable, usually issued by companies, universities and governmental organizations. It is a debt instrument used for the purpose of raising fund of the corporations or governmental agencies. If selling price of the bond is equal to its face value, it is called as par on bond. If selling price of the bond is lesser than the face value, it is known as discount on bond. If selling price of the bond is greater than the face value, it is known as premium on bond.

Prepare the journal entry at April 1, 2018, to record the issuance of the bonds:

DateAccount title and ExplanationPost Ref.

Debit

($)

Credit

($)

April 1, 2018Cash8,160,000
Premium on Bonds payable160,000
Bonds payable8,000,000
(To record the issuance of bonds)

Table (1)

  • Cash (asset) is increased. Thus, it is debited.
  • Premium on Bonds payable (liability) is increased. Thus, it is credited.
  • Bonds payable (liability) is increased. Thus, it is credited.

b)

To determine

Prepare the journal entries to record the payment of interest and amortization of bond premium on September 30, 2018.

b)

Expert Solution
Check Mark

Explanation of Solution

Bond premium: Bond discount is the amount by which the selling price (or issue price or market price) of the bond is more than the face value of the bond.

Prepare the journal entries to record the payment of interest and amortization of bond premium on September 30, 2018:

DateAccount title and ExplanationPost Ref.

Debit

($)

Credit

($)

September  30, 2018Bond Interest Expense (1)316,000
Premium on Bonds Payable4,000
Cash320,000
(To record the adjusting entry for the year end September  30, 2018)

Table (2)

  • Bond interest expense (decreases the equity) is increased. Thus, it is debited.
  • Premium on bonds payable (liability) is decreased. Thus, it is debited.
  • Cash (asset) is decreased. Thus, it is credited.

Working note:

Calculate the bond interest expense:

Semi-annual interest [$8,000,000×8%×(6months ÷ 12 months)]$320,000
Less: Bond premium amortized ($160,000÷20years)×(1÷2)(4,000)
Bond Interest expense$316,000

(1)

Table (3)

c)

To determine

Prepare the journal entries to record the payment of interest and amortization of bond premium and retire the bonds at maturity on March 31, 2038.

c)

Expert Solution
Check Mark

Explanation of Solution

Prepare the journal entries to record the payment of interest and amortization of bond premium and retire the bonds at maturity on March 31, 2038:

DateAccount title and ExplanationPost Ref.

Debit

($)

Credit

($)

March  31, 2038Bond Interest payable160,000
Bond Interest Expense158,000
Premium on Bonds Payable2,000
Cash (2)320,000
(To record the final interest payment and amortized bond premium)
March  31, 2038Bond payable8,000,000
Cash8,000,000
(To record the retirement of bonds)

Table (4)

To record the final interest payment and amortized bond premium:

  • Bond interest payable (liability) is decreased. Thus, it is debited.
  • Bond interest expense (decreases the equity) is increased. Thus, it is debited.
  • Premium on bonds payable (liability) is decreased. Thus, it is debited.
  • Cash (asset) is decreased. Thus, it is credited.

To record the retirement of bonds

  • Bond payable (liability) is decreased. Thus, it is debited.
  • Cash (asset) is decreased. Thus, it is credited.

Working notes:

Calculate the amount of cash has to be pay for the final interest payment and amortized bond premium:

Bond interest payable [$8,000,000×8%×(3÷ 12 months)]$160,000
Bond premium amortized ($160,000÷20years)×(3÷12months)2,000
Bond interest amount ($316,000×3÷6months)158,000
The amount of cash has to pay for the final interest payment and amortized bond premium$320,000

(2)

Table (5)

d)

To determine

Briefly explain the effect of amortizing the bond premium on (1) annual net income and (2) annual net cash flow from operating activities.

d)

Expert Solution
Check Mark

Explanation of Solution

The effect of amortizing the bond premium on (1) annual net income, and (2) annual net cash flows from operating activities:

  1. 1) Amortizing the bond premium reduces the annual interest expense amount and this will results in increase in the annual net income.
  2. 2) Amortization of bonds premium is a non cash expense, part of the annual net interest expense. Therefore, it has no effect on the annual net cash flows from operating activities.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 10 Solutions

Gen Combo Looseleaf Financial And Managerial Accounting; Connect Access Card

Ch. 10 - 11. Deferred income taxes result from: Differences...Ch. 10 - Prob. 1DQCh. 10 - Prob. 2DQCh. 10 - Prob. 3DQCh. 10 - Prob. 4DQCh. 10 - Prob. 5DQCh. 10 - Prob. 6DQCh. 10 - Prob. 7DQCh. 10 - Prob. 8DQCh. 10 - Prob. 9DQCh. 10 - Prob. 10DQCh. 10 - Prob. 11DQCh. 10 - Prob. 12DQCh. 10 - Prob. 13DQCh. 10 - Prob. 14DQCh. 10 - Prob. 15DQCh. 10 - BRIEF EXERCISE 10.1 Cash Effects of...Ch. 10 - BRIEF EXERCISE 10.2 Effective Interest Rate One of...Ch. 10 - Prob. 3BECh. 10 - Prob. 4BECh. 10 - BRIEF EXERCISE 10.5 Recording Bonds Issued at a...Ch. 10 - Prob. 6BECh. 10 - Prob. 7BECh. 10 - Prob. 8BECh. 10 - Prob. 9BECh. 10 - Prob. 10BECh. 10 - Prob. 1ECh. 10 - EXERCISE 10.2 Effects of Transactions on the...Ch. 10 - Prob. 3ECh. 10 - EXERCISE 10.4 Employees—What Do They Really...Ch. 10 - EXERCISE 10.5 Accounting for Payroll...Ch. 10 - EXERCISE 10.6 Use of an Amortization Table Glen...Ch. 10 - Prob. 7ECh. 10 - EXERCISE 10.8 Bond Interest on Bonds Issued at...Ch. 10 - Prob. 9ECh. 10 - Prob. 10ECh. 10 - Prob. 11ECh. 10 - Prob. 12ECh. 10 - Prob. 13ECh. 10 - Prob. 14ECh. 10 - Prob. 15ECh. 10 - PROBLEM 10.1A Effects of Transactions on Financial...Ch. 10 - Prob. 2APCh. 10 - Prob. 3APCh. 10 - PROBLEM 10.4A Preparation and Use of an...Ch. 10 - Prob. 5APCh. 10 - Prob. 6APCh. 10 - Prob. 7APCh. 10 - Prob. 8APCh. 10 - Prob. 1BPCh. 10 - Prob. 2BPCh. 10 - Prob. 3BPCh. 10 - PROBLEM 10.4B Preparation and Use of an...Ch. 10 - Prob. 5BPCh. 10 - Prob. 6BPCh. 10 - PROBLEM 10.7B Reporting Liabilities in a Balance...Ch. 10 - PROBLEM 10.8B Financial Statement Presentation of...Ch. 10 - Prob. 1CTCCh. 10 - Prob. 2CTCCh. 10 - CASE 10.3 Loss Contingencies Discuss each of the...Ch. 10 - CASE 10.4 Off-Balance Sheet Financing Delta...
Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education