P14-7B (Entries for Life Cycle of Bonds) On June 1, 2014, Royal Palm Company sold 6,000 of its 6%, 20-year, $1,000 face value bonds at 96. Interest payment dates are December 1 and Jume 1, and the company uses the straight-line method of bond discount amortization. On February 1, 2015, Royal Palm took advantage of favorable prices of its stock to extinguish 4,000 of the bonds by issuing 500,000 shares of its $1 par value common stock. At this time, the accrued interest was paid in cash. The company’s stock was selling for $8.50 per share on February 1, 2015.
P14-7B (Entries for Life Cycle of Bonds) On June 1, 2014, Royal Palm Company sold 6,000 of its 6%,
20-year, $1,000 face
uses the straight-line method of bond discount amortization. On February 1, 2015, Royal Palm took advantage of favorable prices of its stock to extinguish 4,000 of the bonds by issuing 500,000 shares of its $1 par
value common stock. At this time, the accrued interest was paid in cash. The company’s stock was selling
for $8.50 per share on February 1, 2015.
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B Problems 3
Instructions
Prepare the journal entries needed on the books of Royal Palm Company to record the following.
(a) June 1, 2014: issuance of the bonds.
(b) December 1, 2014: payment of semiannual interest.
(c) December 31, 2014: accrual of interest expense.
(d) February 1, 2015: extinguishment of 4,000 bonds. (No reversing entries made.)
P14-8B (Entries for Zero-Interest-Bearing Note) On December 31, 2014, Payson Company acquired a
press from Sugar Corporation by issuing a $400,000 zero-interest-bearing note, payable in full on December
31, 2017. Payson’s credit rating permits it to borrow funds from its several lines of credit at 8%. The press
is expected to have a 6-year life and a $40,000 salvage value. Round amounts to the nearest dollar.
Instructions
(a) Prepare the
(b) Prepare any necessary
(use effective-interest method) on December 31, 2015.
(c) Prepare any necessary adjusting entries relative to depreciation and amortization on December 31,
2016
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