Question

E10-11 and E10-12

s planning to issue $100,000, five-year, 6 percent bonds. Interest is payable semi-annually each June 30 and December 31. All of the bonds will be sold on mature on June 30, 2022. the bonds will be sold on July 1, 2017; they L010-3 E10-11 Required: ssue (sale price on July 1, 2017, if the yield is (a) 6 percent, (b) 5 percent, and © 7 percent. Show computations. Recording Bond Issue and First Interest Paument with Premium (Effective-inte Recording Bor Amortization) On January 1, 2018, Bochini Corporation sold a $10 million, 8.25 percent bond issue. The bonds we dated January 1, 2018, had a yield of 8 percent, pau interest each December 31, and mature 10 years from the date of issue. Required: 1. Prepare the journal entry to record the issuance of the bonds. 2. Prepare the journal entry to record the interest payment on December 31, 2018. Use effective- interest amortization. 3. Show how the bond interest expense and the bonds payable should be reported on the annual financial statements for 2018. L010-3 E10-12 Determining Financial Statement Balance with the Effective-Interest Amortization of a Determining Financial Statement a Bond Discount Eagle Corporation issued $10,000,000, 6.5 percent bonds dated April 1, 2018. The market rate of interest was 7 percent, with interest paid each March 31. The bonds mature in three years, on March 31, 2021. Eagle's fiscal year ends on December 31. Required: 1. What was the issue price of these bonds? 2 Compute the bond interest expense for fiscal year 2018. The company uses the effective inter method of amortization. on the statement of financial position at December 31, 2018. 3. Show how the bonds should be reported on the statement of financial position pense will be recorded on March 31, 2019? Is this amount different from 4. What amount of interest expense will be recorded on March 31, 20 the amount of cash that is paid? If so, why?

Answer 1

FV Coupon rate 8.25% Coupon = FV X Coupon rate $ 825,000 10,000,000 Annual Yield = Coupon/Issue Price 8% = 825000/Issue Price Issue Price = 10,312,500 Premium = Issue Price - FV = 10312500 - 10000000 = 312500 Annual Amortization = Premium/No. Of Years = 312500/10 = 31250

Credit ($) Debit ($) 10,312,500 Journal No. Date Account Titles and Explanation 1 1/1/2018 Cash Bonds Payable Premium on Bonds Payable (To record the issuance of bond) 10,000,000 312,500 793,750 31,250 2 31/12/18 Interest Expense Premium Bonds Payable Cash |(To record the payement of interest and amortization on bonds payable) 825,000

Balance Sheet (Partial) For the Year Ended December 31, 2018 Assets Income Statement (Partial) For the Year Ended December 31, 2018 Sales revenue Less: Sales return\Sales discount Less: Cost of goods sold Gross profit Less: Operating expenses: Current assets: Total current assets Fixed assets: Total Operating Expenses Less: Non-Operating Income: Interest expense 793,750 793,750 Total Non-Operating Income Income before income tax Income tax expense Net income Total fixed assets Total assets Row: Liabilities and Shareholders' Equity As per policy, I can solve one unique question or first four sub parts of the same question. Current liabilities: Total current liabilities Non-current liabilities: Bonds Payable Premium on Bond Payable (312500-31250) 10,000,000 281,250 10,281,250 Total non-current liabilities Shareholders' equity Total Shareholders' equity Total liabilities and shareholders' Equity