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Jeff's Outhouse Co. (JOC) issued callable bonds on January 1, 2021. JOC's accountant has projected the following amortization schedule from issuance until maturity: Date Cash interest Effective Decrease in Outstanding 1/1/21 414,040 6/30/21 14,000 12,421 1,579 412,461 12/31/21 14,000 12,374 1,626 410,835 6/30/22 14,000 12,325 1,675 409, 160 12/31/22 14,000 12,275 1,725 407,435 6/30/23 14,000 12,223 1,777 405,658 12/31/23 14,000 12,170 1,830 403,828 6/30/24 14,000 12,115 1,885 401,943 12/31/24 14,000 12,058 1,943 400,000

Jeff's Outhouse Co. (JOC) issued callable bonds on January 1, 2021. JOC's accountant has projected the following amortization schedule from issuance until maturity: Date Cash interest Effective Decrease in Outstanding 1/1/21 414,040 6/30/21 14,000 12,421 1,579 412,461 12/31/21 14,000 12,374 1,626 410,835 6/30/22 14,000 12,325 1,675 409, 160 12/31/22 14,000 12,275 1,725 407,435 6/30/23 14,000 12,223 1,777 405,658 12/31/23 14,000 12,170 1,830 403,828 6/30/24 14,000 12,115 1,885 401,943 12/31/24 14,000 12,058 1,943 400,000

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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3. What is the annual effective interest rate on the bonds? - a. 3% - b. 3.5% - c. 6% - d. 7% 4. JOC calls the bonds at 102 immediately after the interest payment on 12/31/2022 and retires them. What gain or loss, if any, would JOC record on this date? - a. No gain or loss - b. $8,000 loss - c. $565 loss - d. $565 gain
Transcribed Image Text:3. What is the annual effective interest rate on the bonds? - a. 3% - b. 3.5% - c. 6% - d. 7% 4. JOC calls the bonds at 102 immediately after the interest payment on 12/31/2022 and retires them. What gain or loss, if any, would JOC record on this date? - a. No gain or loss - b. $8,000 loss - c. $565 loss - d. $565 gain
Use the following to answer questions 1-4: Jeff's Outhouse Co. (JOC) issued callable bonds on January 1, 2021. JOC's accountant has projected the following amortization schedule from issuance until maturity: | Date | Cash Interest | Effective | Decrease in Outstanding | Outstanding | |------------|---------------|-----------|-------------------------|-------------| | 1/1/21 | | | | 414,040 | | 6/30/21 | 14,000 | 12,421 | 1,579 | 412,461 | | 12/31/21 | 14,000 | 12,374 | 1,626 | 410,835 | | 6/30/22 | 14,000 | 12,325 | 1,675 | 409,160 | | 12/31/22 | 14,000 | 12,275 | 1,725 | 407,435 | | 6/30/23 | 14,000 | 12,223 | 1,777 | 405,658 | | 12/31/23 | 14,000 | 12,170 | 1,830 | 403,828 | | 6/30/24 | 14,000 | 12,115 | 1,885 | 401,943 | | 12/31/24 | 14,000 | 12,058 | 1,943 | 400,000 | **Explanation of the table:** - **Date:** The schedule lists dates from June 2021 to December 2024, indicating the semi-annual bond periods. - **Cash Interest:** A constant cash interest amount of $14,000 is paid semi-annually. - **Effective Interest:** This column shows the effective interest expense computed using the effective interest rate method. It decreases over time. - **Decrease in Outstanding:** This is the reduction in the outstanding amount of the bond principle, calculated as the difference between cash interest and effective interest. - **Outstanding Balance:** The remaining principal of the bond after accounting for the decrease in outstanding balance over each period. The schedule illustrates how
Transcribed Image Text:Use the following to answer questions 1-4: Jeff's Outhouse Co. (JOC) issued callable bonds on January 1, 2021. JOC's accountant has projected the following amortization schedule from issuance until maturity: | Date | Cash Interest | Effective | Decrease in Outstanding | Outstanding | |------------|---------------|-----------|-------------------------|-------------| | 1/1/21 | | | | 414,040 | | 6/30/21 | 14,000 | 12,421 | 1,579 | 412,461 | | 12/31/21 | 14,000 | 12,374 | 1,626 | 410,835 | | 6/30/22 | 14,000 | 12,325 | 1,675 | 409,160 | | 12/31/22 | 14,000 | 12,275 | 1,725 | 407,435 | | 6/30/23 | 14,000 | 12,223 | 1,777 | 405,658 | | 12/31/23 | 14,000 | 12,170 | 1,830 | 403,828 | | 6/30/24 | 14,000 | 12,115 | 1,885 | 401,943 | | 12/31/24 | 14,000 | 12,058 | 1,943 | 400,000 | **Explanation of the table:** - **Date:** The schedule lists dates from June 2021 to December 2024, indicating the semi-annual bond periods. - **Cash Interest:** A constant cash interest amount of $14,000 is paid semi-annually. - **Effective Interest:** This column shows the effective interest expense computed using the effective interest rate method. It decreases over time. - **Decrease in Outstanding:** This is the reduction in the outstanding amount of the bond principle, calculated as the difference between cash interest and effective interest. - **Outstanding Balance:** The remaining principal of the bond after accounting for the decrease in outstanding balance over each period. The schedule illustrates how
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