Barnett Industries, Inc., issued $600,000 of 8% bonds on January 1, 2019. The bonds pay interest semiannually on July 1 and January 1. The maturity date on these bondsis December 31, 2028. The firm uses the effective interest method of amortizing discounts and premiums. The bonds were sold to yield an effective interest rate of 9%.Barnett incurred legal and investment banking fees of $22,000 in issuing the bonds and amortizes these costs annually on a straight-line basis.Required:1. Calculate the selling price of the bonds.2. Prepare journal entries for the issuance of the bonds and debt issuance costs.

Step 1: Calculate the Selling Price of the BondsBond Details:Face Value: This is the amount the…

Answered: Barnett Industries, Inc., issued…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter13: Investments And Long-term Receivables

Section: Chapter Questions

Problem 1RE

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On January 1, 2018, Wawatosa Inc. issued 5-year bonds with a face value of $200,000 and a stated interest rate of 12% payable semi-annually on July 1 and January 1. The bonds were sold to yield 10%. Assuming the bonds were sold at 107.732, what is the selling price of the bonds? Were they issued at a discount or a premium?
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 premium
Barnett Industries, Inc., issued $600,000 of 8% bonds on January 1, 2019. The bonds pay interest semiannually on July 1 and January 1. The maturity date on these bonds is December 31, 2028. The firm uses the effective interest method of amortizing discounts and premiums. The bonds were sold to yield an effective interest rate of 9%. Barnett incurred legal and investment banking fees of $22,000 in issuing the bonds and amortizes these costs annually on a straight-line basis. Required: 1. Calculate the selling price of the bonds. 2. Prepare journal entries for the issuance of the bonds and debt issuance costs. You should determine the selling price by using the effective rate to determine the present value of both the future principal and periodic interest payments. When interest is paid semiannually, you should divide the effective rate by the interest periods per year to determine the effective rate per semiannual period. You should also express the time to maturity in…
On January 2, 2018, Sunland Corporation, a small company that follows ASPE, issued $2.6 million of 7% bonds at 98 due on December 31, 2027. Legal and other costs of $260,000 were incurred in connection with the issue. Sunland has a policy of capitalizing and amortizing the legal and other costs incurred by including them with the bond recorded at the date of issuance. Interest on the bonds is payable each December 31. The $260,000 of issuance costs are being deferred and amortized on a straight-line basis over the 10- year term of the bonds. The discount on the bonds is also being amortized on a straight-line basis over the 10 years. (The straight-line method is not materially different in its effect compared with the effective interest method.) The bonds are callable at 105 (that is, at 105% of their face amount), and on January 2, 2023, the company called a face amount of $1,400,000 of the bonds and retired them. (a) Ignoring income taxes, calculate the amount of loss, if any, that…
On January 1, 2021, Crane Ltd. issued $640,000 of 5%, 5-year bonds. The bonds were issued to yield a market interest rate of 6%. Crane's year end is December 31. On January 1, 2023 immediately after making and recording the semi-annual interest payment, Crane redeemed the bonds. A partial bond amortization schedule is presented below. Semi-Annual Interest Interest Bond Interest Period Payment Expense Amortization Amortized Cost Jan. 1, 2021 $612,703 July 1, 2021 16,000 $18,381 $2,381 615,084 Jan. 1, 2022 16,000 18.453 2,453 617,537 July 1, 2022 16,000 18,526 2.526 620,063 Jan. 1, 2023 16,000 18,602 2,602 622,665 Prepare the journal entry to record the payment of interest on July 1, 2021 (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Date Account Titles and Explanation Debit Credit July 1 (To record interest payment.) eTextbook and Media…
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On January 1, 2019, Gates Corporation issued $100,000 of 5-year bonds due December 31, 2023, for $103,604.79 minus debt issuance costs of $3,000. The bonds carry a stated rate of interest of 13% payable annually on December 31 and were issued to yield 12%. The company uses the effective interest method of amortization to amortize any discounts or premiums and the straight-line method to amortize the debt issuance costs. Required: Prepare the journal entries to record the issuance of the bonds, all the interest payments, premium amortizations, debt issuance cost amortizations, and the repayment of the bonds. In addition, prepare a bond interest expense and premium amortization schedule for the bonds. Journal 2019 has 10 lines Journal 2020 has 5 lines Journal 2021 has 5 lines Journal 2022 has 5 line Journal 2023 has 7 lines . Prepare a bond interest expense and premium amortization schedule for the bonds. Amortization Schedule Instructions GATES CORPORATION Bond…
On January 1, 2019, Gates Corporation issued $100,000 of 5-year bonds due December 31, 2023, for $103,604.79 minus debt issuance costs of $3,000. The bonds carry a stated rate of interest of 13% payable annually on December 31 and were issued to yield 12%. The company uses the effective interest method of amortization to amortize any discounts or premiums and the straight-line method to amortize the debt issuance costs. Required: Prepare the journal entries to record the issuance of the bonds, all the interest payments, premium amortizations, debt issuance cost amortizations, and the repayment of the bonds. In addition, prepare a bond interest expense and premium amortization schedule for the bonds. CHART OF ACCOUNTS Gates Corporation General Ledger ASSETS 111 Cash 121 Accounts Receivable 141 Inventory 152 Prepaid Insurance 181 Equipment 195 Deferred Debt Issuance Costs 198 Accumulated Depreciation LIABILITIES 211 Accounts Payable…
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