Homework Answers
| Present value of Bonds | $ 5,405,550.00 | ||||
| Les: Face value of Bonds | $ (5,000,000.00) | ||||
| Bonds Issued on Premium | $ 405,550.00 | ||||
|
a) Straight-line method for amortization |
|||||
| Date |
Int. Paid (Face value × 10% × 1⁄4) |
Interet Exp. | Premium Quarterly amortization ($405,550 ÷ 20 periods | Unamortized Premium | Bond Carrying Amount |
| $ 405,550.00 | $ 5,405,550.00 | ||||
| Sept. 30 | $ 125,000.00 | $ 104,722.50 | $ 20,277.50 | $ 385,272.50 | $ 5,385,272.50 |
| Dec. 31 | $ 125,000.00 | $ 104,722.50 | $ 20,277.50 | $ 364,995.00 | $ 5,364,995.00 |
| Mar. 31 | $ 125,000.00 | $ 104,722.50 | $ 20,277.50 | $ 344,717.50 | $ 5,344,717.50 |
| Jun.30 | $ 125,000.00 | $ 104,722.50 | $ 20,277.50 | $ 324,440.00 | $ 5,324,440.00 |
| Total First year | $ 500,000.00 | $ 418,890.00 | $ 81,110.00 | ||
|
b. Effective interest method for amortization |
|||||
| Date |
Int. Paid (Face value × 10% × 1⁄4) |
Interet Exp. (Carrying Amount × 8% × 1⁄4) | Premium Amortization (Int. Paid – Int. Exp.) | Unamortized Premium | Bond Carrying Amount |
| $ 405,550.00 | $ 5,405,550.00 | ||||
| Sept. 30 | $ 125,000.00 | $ 108,111.00 | $ 16,889.00 | $ 388,661.00 | $ 5,388,661.00 |
| Dec. 31 | $ 125,000.00 | $ 107,773.22 | $ 17,226.78 | $ 371,434.22 | $ 5,371,434.22 |
| Mar. 31 | $ 125,000.00 | $ 107,428.68 | $ 17,571.32 | $ 353,862.90 | $ 5,353,862.90 |
| Jun.30 | $ 125,000.00 | $ 107,077.26 | $ 17,922.74 | $ 335,940.16 | $ 5,335,940.16 |
| Total First year | $ 500,000.00 | $ 430,390.16 | $ 69,609.84 | ||
| c) | |||||
| Date | Account Titles and explanation | Debit | Credit | ||
| 30-Jun |
Cash |
$ 5,405,550.00 | |||
| Premium on Bonds Payable | $ 405,550.00 | ||||
| Bonds Payable | $ 5,000,000.00 | ||||
| (Record Bond Issuance) | |||||
| 30-Sep | Interest Expense | $ 104,722.50 | |||
| Premium on Bonds Payable | $ 20,277.50 | ||||
| Cash | $ 125,000.00 | ||||
|
(Record first Interest payment) |
|||||
| 30-Jun | Bonds Payable | $ 5,000,000.00 | |||
| Cash | $ 5,000,000.00 | ||||
| (Record Bonds Retirement) | |||||
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Default Download IU A. A 1. Fast Tires issued $5,000,000 of five-year, 10% bonds on June 30, 2045, for $5,405,550. The bonds pay interest quarterly, beginning September 30, 20Y5. At the date of issuance, the market rate was 8%. Calculate the interest expense and bond amortization for the first fiscal year using the: a. Straight-line method for amortization b. Effective interest rate method for amortization Use the information above to prepare the journal entries to record the issuance, first interest...
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PROBLEM II (50%) Koresh Corp. issued $5,000,000, 6%, 10-year bonds, dated April 1, with interest payment dates of September 30, and March 31. A. Assume the bonds were issued at 96 on April 1, 2019. 1. Make the journal entry for April 1, 2019. 2. Make the journal entry for 9/30/19 if the straight method of amortization was being used. 3. Make the journal entry for 9/30/2019 under the effective interest method is being used. The market rate is some...
Wilbury 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 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 stra n e method 2. Prepare a bond interest expense and discount amortization schedule using the effective interest method. 3. Prepare adjusting entries for the end of...
problem 14-6. Before maturity, Foster incorporated
sold $500,000 of 12% bonds on january 1, 2019, for $470,143.47 a
price that yields a 14% interest rate. the bonds pay interest
semiannually on June 30 and december 31 and are due December 31,
2022. foster uses the effective interest method.
prepare an interest expense and discount ammortization
schedule.
assume the company reacquired the bonds on July 1, 2021 at 104.
prepare journal entries to record the bond retirement.
40 Chapter 14 Financing...
straight line
effective interest
On October 1st, 2018, Franklin Corporation issued $2 million of 13.5% bonds for $1,970,143.36. The bonds are due in 4 years, and pay interest semiannually on March 31 and September 30. Assume an effective yield rate of 14% a.Use the spreadsheet included in the module section to prepare a bond interest expense and discount amortization schedule using the straight-line method. b.Use the same spreadsheet to prepare a bond interest expense and discount amortization schedule using the...
Problem 6 On January 1, 2014, Irish, Inc. issued 10-year bonds of $500,000 face value at 103. Interest is payable on June 30 and December 31 at 8%. On April 1, 2015, Irish reacquires $100,000 bonds at 99 plus accrued interest. The fiscal period for Irish is the calendar year. The straight-line method is used to amortize any premium or discount. Prepare entries to record: A) the issuance of the bonds and B) the reacquisition and retirement of the bonds.
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