Exercise 10-16A (Algo) Straight-line amortization for bonds issued at a discount LO 10 - 4 On January 1, Year 1, Price Company issued $133,000 of five-year, 6 percent bonds at 97. Interest is payable annually on December 31. The discount is amortized using the straight-line method. Required Prepare the journal entries to record the bond transactions for Year 1 and Year 2. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Exercise 10-16A (Algo) Straight-line amortization for bonds issued at a discount LO 10 - 4 On January 1, Year 1, Price Company issued $133,000 of five-year, 6 percent bonds at 97. Interest is payable annually on December 31. The discount is amortized using the straight-line method. Required Prepare the journal entries to record the bond transactions for Year 1 and Year 2. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter10: Long-term Liabilities

Section: Chapter Questions

Problem 10.2AP

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BONDS ISSUED AT A DISCOUNT, REDEEMED AT A GAIN Ellis Co. issued the following bonds at a discount: REQUIRED Prepare journal entries for: (a) Issuance of the bonds. (b) Interest payment and discount amortization on the bonds on September 30, 20-1. (c) Year-end adjustment on the bonds for 20-1. (d) Reversing entry for the beginning of 20-2. (e) Redemption of 50,000 of the bonds on April 1, 20-4, at 96.
MASTERY PROBLEM Jackson, Inc.s fiscal year ends December 31. Selected transactions for the period 20-1 through 20-8 involving bonds payable issued by Jackson are as follows: 20-1 Oct. 31 Issued 600,000 of 10-year, 7%, callable bonds dated October 31, 20-1, for 612,000. Interest is payable semiannually on October 31 and April 30. The bond indenture provides that Jackson is to pay to the trustee bank 20,000 by May 15 of each year (except the tenth year) as a sinking fund for the retirement of the bonds on call or at maturity. Dec. 31 Made the adjusting entry for interest payable and amortized two months premium on the bonds (straight-line method). 20-2 Jan. 2 Reversed the adjusting entry for interest payable and bond premium amortization. Apr. 30 Paid the semiannual interest on the bonds and amortized six months premium. May 15 Paid the sinking fund trustee 20,000. Oct. 31 Paid the semiannual interest on the bonds and amortized six months premium. Dec. 31 Made the adjusting entry for interest payable and amortized two months premium on the bonds. 31 Sinking fund earnings for the year were 900. 20-8 May 15 Paid the sinking fund trustee 20,000. Oct. 31 Paid the semiannual interest on the bonds and amortized six months premium. 31 Redeemed the bonds, which were called at 97. The balance in the bond premium account is 3,600 after the payment of interest and amortization of premium have been entered. The cash balance in the sinking fund is 200,000, which is applied to the redemption. Jackson paid the sinking fund trustee the additional cash needed to pay off the bonds. (Hint: First make the entry for payment to the sinking fund, then make the entry for redemption of the bonds.) REQUIRED 1. Enter the preceding transactions in general journal form. 2. Calculate the carrying value of the bonds as of December 31, 20-2.
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 on 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 straight-line method. 2. Prepare a bond interest expense and discount amortization schedule using the effective interest method. 3. Prepare adjusting entries for the end of the fiscal year December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. If income before interest and income taxes of 30% in 2020 is 500,000, compute net income under each alternative. 5. Assume the company retired the bonds on June 30, 2020, at 98 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight line method of amortization b. effective interest method of amortization 6. Compute the companys times interest earned (pretax operating income divided by interest expense) for 2020 under each alternative.
Amortize premium by interest method Shunda Corporation wholesales parts to appliance manufacturers. On January 1, Shunda issued 22,000,000 of five-year, 9% bonds at a market (effective) interest rate of 7%, receiving cash of 23,829,684. Interest is payable semiannually. Shundas fiscal year begins on January 1. The company uses the interest method. A. Journalize the entries to record the following: 1. Sale of the bonds. 2. First semiannual interest payment, including amortization of premium. (Round to the nearest dollar.) 3. Second semiannual interest payment, including amortization of premium. (Round to the nearest dollar.) B. Determine the bond interest expense for the first year. C. Explain why the company was able to issue the bonds for 23,829,684 rather than for the face amount of 22,000,000.
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BONDS ISSUED AT FACE VALUE WITH SINKING FUND Martin Manufacturing issued the following bonds: REQUIRED Prepare journal entries for: (a) Issuance of the bonds. (b) Deposit to sinking fund on June 1. (c) Interest payment on the bonds on September 30, 20-1. (d) Earnings of 2,400 on the sinking fund in 20-1. (e) Year-end adjustment on the bonds for 20-1. (f) Reversing entry for the beginning of 20-2. (g) Interest payment on the bonds on March 31, 20-2. (h) Deposit to sinking fund on June 1, 20-2. (i) Redemption at maturity from the sinking fund. (j) Return of excess cash of 1,050 from the sinking fund to the corporation.
BONDS ISSUED AT FACE VALUE WITH SINKING FUND Creswell Entertainment issued the following bonds: REQUIRED Prepare journal entries for: (a) Issuance of the bonds. (b) Deposit to sinking fund on June 1. (c) Interest payment on the bonds on September 30, 20-1. (d) Earnings of 3,000 on the sinking fund in 20-1. (e) Year-end adjustment on the bonds for 20-1. (f) Reversing entry for the beginning of 20-2. (g) Interest payments on the bonds on March 31, 20-2. (h) Deposit to sinking fund on June 1, 20-2. (i) Redemption at maturity from the sinking fund. (j) Return of excess cash of 1,900 from the sinking fund to the corporation.
Edward Inc. issued bonds with a $500,000 face value, 10% interest rate, and a 4-year term on July 1, 2018 and received $480,000. Interest is payable semiannually. The discount 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 discount
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Cornerstone Exercise 9-27 (Algorithmic)Debt Issued at a Discount (Straight Line) On January 1, 2020, Drew Company issued $1,250,000, 5-year bonds for $1,112,500. The stated rate of interest was 4% and interest is paid annually on December 31. Required: Prepare the amortization table for Drew Company's bonds. If an amount box does not require an entry, leave it blank and if the answer is zero, enter "0". Drew Company Amortization Table Period Cash Payment (Credit) Interest Expense (Debit) Discount on Bonds Payable (Credit) Discount on Bonds Payable Balance Carrying Value At issue $fill in the blank 1 $fill in the blank 2 $fill in the blank 3 $fill in the blank 4 $fill in the blank 5 12/31/20 fill in the blank 6 fill in the blank 7 fill in the blank 8 fill in the blank 9 fill in the blank 10 12/31/21 fill in the blank 11 fill in the blank 12 fill in the blank 13 fill in the blank 14 fill in the blank 15 12/31/22 fill in the blank 16 fill in the blank 17 fill in the…