On January 1, 2020, Everly Bottle Company sold $3,000,000 in long-term bonds. The bonds will mature in 5 years and have a stated interest rate of 8% and a yield rate of 10%. The bonds pay interest July 1 and January 1 of each year. The bonds are to be accounted for under the effective-interest method. Instructions: 1. Calculate the bond proceeds using the attached present value tables. 2. Prepare a Bond Discount/Premium Amortization Schedule. 3. Prepare the journal entry to record the bonds on the date of issue, January 1, 2020. 4. Prepare the journal entry to record the first payment and amortization of the discount/premium on July 1, 2020. 5. Prepare the journal entry to record the accrued interest and amortization of the discount/premium on December 31, 2020. 6. Prepare the journal entry to record the payment of the bonds at maturity; January 1, 2025. Assume the appropriate accrual was made on December 31, 2024 (see 5. above)
On January 1, 2020, Everly Bottle Company sold $3,000,000 in long-term bonds. The bonds will mature in 5 years and have a stated interest rate of 8% and a yield rate of 10%. The bonds pay interest July 1 and January 1 of each year. The bonds are to be accounted for under the effective-interest method. Instructions: 1. Calculate the bond proceeds using the attached present value tables. 2. Prepare a Bond Discount/Premium Amortization Schedule. 3. Prepare the journal entry to record the bonds on the date of issue, January 1, 2020. 4. Prepare the journal entry to record the first payment and amortization of the discount/premium on July 1, 2020. 5. Prepare the journal entry to record the accrued interest and amortization of the discount/premium on December 31, 2020. 6. Prepare the journal entry to record the payment of the bonds at maturity; January 1, 2025. Assume the appropriate accrual was made on December 31, 2024 (see 5. above)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Please answer parts 4,5,6
Transcribed Image Text:On January 1, 2020, Everly Bottle Company sold
$3,000,000 in long-term bonds. The bonds will mature in 5 years and have a
stated interest rate of 8% and a yield rate of 10%. The bonds pay interest
July 1 and January 1 of each year. The bonds are to be accounted for under
the effective-interest method.
Instructions:
1. Calculate the bond proceeds using the attached present value tables.
2. Prepare a Bond Discount/Premium Amortization Schedule.
3. Prepare the journal entry to record the bonds on the date of issue,
January 1, 2020.
4. Prepare the journal entry to record the first payment and amortization of
the discount/premium on July 1, 2020.
5. Prepare the journal entry to record the accrued interest and amortization
of the discount/premium on December 31, 2020.
6. Prepare the journal entry to record the payment of the bonds at
maturity; January 1, 2025. Assume the appropriate accrual was made on
December 31, 2024 (see 5. above)
Expert Solution
Step 1
The journal entry is the first stage in entering a transaction into the books of accounts. Bonds are fixed-interest debt instruments. The coupon rate is the interest rate that the bond offers. The bonds have a price lower than the face value if the coupon rate is lower than the interest rate in the market.
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