Question

When market interest rates were 6%, three companies issued bonds on January 1, 2018. Each company has a December 31 year end and each company issued bonds with a face value of $88,000 that pay interest annually on December 31. Able Limited sold its bonds at 100 and offered a coupon interest rate of 6%, while Beta Corp. sold its bonds at 94 and offered a coupon interest rate of 4%, and Charles Inc. sold its bonds at 105 and offered a 7% coupon interest rate. Record the issue of the bonds by each company on January 1, 2018. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Credit Debit Date Able Limited Jan. 1 88000 88000 Beta Corp. Jan. 1 Charles Inc. Jan. 1

Answer 1

Solution Able LimitedBeta Corp. $88,000 $88,000 Charles Inc. $88,000 $88,000 $82,720 $92,400 Face Value of Bonds Issue price of Bonds Able Limited ($88,000 x 100/100) Beta Corp. ($88,000 x 94/100) Charles Inc. ($88,000 x 105/100) Discount on issue of bonds ($88,000 - $82,720) Premium on issue of bonds ($92,400 - $88,000) Coupon Rate of interest Market interest rate Interest payment frequency Annual interest payment (face value x coupon rate) $5,280 6.00% 6.00% Annually $5,280 4.00% 6.00% Annually $3,520 $4,400 7.00% 6.00% Annually $6,160 Required 1 : Journal Entry to record the issue of the bonds by each company on January 1, 2018 Date Account Titles and Explanation Debit Credit Able Limited Jan. 1, 2018 Cash Bonds Payable (To record issue of bonds at par) $88,000 I $88,000 $82,7201 Beta Corp. | Jan. 1, 2018 Cash Bonds Payable (To record issue of bonds at discount) $82,720 Charles Inc. Jan. 1, 2018 $92,400 Cash Bonds Payable (To record issue of bonds at premium) $92,400 Required 2 : Journal Entry to record the payment of interest on December 31, 2018 | Date Account Titles and Explanation | Debit Credit $5,280 Able Limited Dec. 31, 2018 Interest Expense ($88,000 x 6%) Cash ($88,000 x 6%) (To record payment of interest) $5,280 $4,963 Beta Corp. Dec. 31, 2018 Interest Expense ($82,720 x 6%) Bonds Payable ($4,963 - $3,520) Cash ($88,000 x 4%) (To record payment of interest) $1,443 $3,520 Charles Inc. Dec. 31, 2018 Interest Expense ($92,400 x 6%) Bonds Payable ($6,160 - $5,544) Cash ($88,000 x 7%) (To record payment of interest) $5,544) $616 $6,160 Required 2: Journal Entry to record the payment of interest on December 31, 2018 Issue price of Bonds Add/(less): Discount/(Premium) amortized in 2018 Balance in Bonds Payable account on Dec. 31, 2018 Able Limited $88,000 $0 $88,000 Beta Corp. $82,720 $1,443 $84,163 Charles Inc. $92,400 ($616) $91,784 Balance in Bonds Payable account Able Limited $88,000 Beta Corp. $84,163 Charles Inc. $91,784

Answer 2

Solution Beta Corp $88,000 Able Limited Charles Inc. Face Value of Bonds $88,000 $88,000 Issue price of Bonds $88,000 Able Limited ($88,000 x 100/100) Beta Corp. $88,000 x 94/100) $82,720 Charles Inc. ($88,000 x 105/100) $92,400 Discount on issue of bonds ($88,000 - $82,720) Premium on issue of bonds ($92,400- $88,000) $5,280 $4,400 Coupon Rate of interest 6.00% 4.00% 7.00% Market interest rate 6.00% 6.00% 6.00% Annually Interest payment frequency Annual interest payment (face value x coupon rate) Annually Annually $6,160 $5,280 $3,520 Required 1: Journal Entry to record the issue of the bonds by each company on January 1, 2018 Account Titles and Explanation Debit Credit Date Able Limited $88,000 Jan. 1, 2018 Cash $88,000 Bonds Payable (To record issue of bonds at par) Beta Corp. $82,720 Jan. 1, 2018 Cash Bonds Payable $82,720 (To record issue of bonds at discount) Charles Inc. Jan. 1, 2018Cash $92,400 Bonds Payable $92,400 (To record issue of bonds at premium) Required 2: Journal Entry to record the payment of interest on December 31, 2018 Account Titles and Explanation Debit Credit Date Able Limited Dec. 31, 2018 Interest Expense ($88,000 x 6%) Cash ($88,000 x 6%) $5,280 $5,280 (To record payment of interest) Beta Corp Dec. 31, 2018 Interest Expense ($82,720 x 6%) $4.963 Bonds Payable ($4,963 - $3,520) $1,443 Cash ($88,000 x 4%) $3,520 (To record payment of interest) Charles Inc. Dec. 31, 2018 Interest Expense ($92,400 x 6%) Bonds Payable ($6,160 $5,544) Cash ($88,000 x 7%) $5,544 $616 $6,160 (To record payment of interest) Required 3: Balance in Bonds Payable account on Dec. 31, 2018 Beta Corp Charles Inc. Able Limited $88,000 Issue price of Bonds $82,720 $92,400 Add/(less) Discount/(Premium) amortized in 2018 $0 $1,443 ($616) Balance in Bonds Payable account on Dec. 31, 2018 $88,000 $84,163 $91,784 Balance in Bonds Payable account Able Limited $88,000 Beta Corp. $84,163 Charles Inc $91,784