Please answer the following questions: 1. What was the total interest expense for the year 2018 reflected on the income statement? 2. What was the total amount borrowed? 3. Calculate the effective rate of interest for the year (Interest Expense/Total Amount Borrowed) and round to the nearest percent. Is this rate more indicative of the market rate or contract rate? Do you think the financial statements reflect the true cost of borrowing? Why? 4. Why would the company redeem the bonds prior to the maturity date if they were going to recognize a loss? Can
Please answer the following questions: 1. What was the total interest expense for the year 2018 reflected on the income statement? 2. What was the total amount borrowed? 3. Calculate the effective rate of interest for the year (Interest Expense/Total Amount Borrowed) and round to the nearest percent. Is this rate more indicative of the market rate or contract rate? Do you think the financial statements reflect the true cost of borrowing? Why? 4. Why would the company redeem the bonds prior to the maturity date if they were going to recognize a loss? Can
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Bonds Payable
On January 1, 2018, Thomas Company issued $100,000, 5-year,
12% bonds, with interest payable semi-annually, at an effective
(market rate) of 10%. Use the present value factors from
Exhibit 5 and 7 on pages 559 and 560, respectively from the
textbook to calculate the price of the bonds at issuance.
Prepare the journal entries to record the following:
1. 1/1/2018 issuance of the bonds for cash
2. 6/30/2018 semi-annual interest payment assuming straight
line amortization
3. 12/31/2018 semi-annual interest payment assuming straight
line amortization
4. 1/1/2019 redemption of the bonds at a price of 115.
Please answer the following questions:
1. What was the total interest expense for the year 2018
reflected on the income statement?
2. What was the total amount borrowed?
3. Calculate the effective rate of interest for the year (Interest
Expense/Total Amount Borrowed) and round to the nearest
percent. Is this rate more indicative of the market rate or
contract rate? Do you think the financial statements reflect
the true cost of borrowing? Why?
4. Why would the company redeem the bonds prior to the
maturity date if they were going to recognize a loss? Can
you think of an example of such a decision we might face
in our personal lives?
Transcribed Image Text:123456
Exhibit 5
5%
6%
7%
10% 11% 12% 13%
Periods 4%
0.96154 0.956940 0.95238 0.94787 0.94340 0.93897 0.93458 0.90909 0.90090 0.89286 0.88496
0.92456 0.915730 0.90703 0.89845 0.89000 0.88166 0.87344 0.82645 0.81162 0.79719 0.78315
0.88900 0.876300 0.86384 0.85161 0.83962 0.82785 0.81630 0.75131 0.73119 0.71178 0.69305
0.85480 0.838560 0.82270 0.80722 0.79209 0.77732 0.76290 0.68301 0.65873 0.63552 0.61332
0.82193 0.802450 0.78353 0.76513 0.74726 0.72988 0.71299 0.62092 0.59345 0.56743 0.54276
0.79031 0.767900 0.74622 0.72525 0.70496 0.68533 0.66634 0.56447 0.53464 0.50663 0.48032
0.75992 0.734830 0.71068 0.68744 0.66506 0.64351 0.62275 0.51316 0.48166 0.45235 0.42506
0.73069 0.703190 0.67684 0.65160 0.62741 0.60423 0.58201 0.46651 0.43393 0.40388 0.37616
0.70259 0.672900 0.64461 0.61763 0.59190 0.56735 0.54393 0.42410 0.39092 0.36061 0.33288
10 0.67556 0.643930 0.61391 0.58543 0.55839 0.53273 0.50835 0.38554 0.35218 0.32197 0.29459
7
8
9
Exhibit 7
May 18, 2023 at 9:38 PM
Periods 4%
5%
6%
7%
10% 11% 12% 13%
1 0.96154 0.95694 0.95238
0.95238 0.94787 0.94340 0.93897 0.93458 0.90909 0.90090 0.89286 0.88496
1.88609 1.87267 1.85941 1.84632 1.83339 1.82063 1.80802 1.73554 1.71252 1.69005 1.66810
2.77509 2.74896 2.72325 2.69793 2.67301 2.64848 2.62432 2.48685 2.44371 2.40183 2.36115
3.62990 3.58753 3.54595 3.50515 3.46511 3.42580 3.38721 3.16987 3.10245 3.03735 2.97447
4.45182 4.38998 4.32948 4.27028
4.32948 4.27028 4.21236 4.15568 4.10020 3.79079 3.69590 3.60478 3.51723
5.24214 5.15787 5.07569 4.99553 4.91732 4.84101 4.76654 4.35526 4.23054 4.11141 3.99755
6.00205 5.89270 5.78637 5.68297 5.58238 5.48452 5.38929 4.86842 4.71220 4.56376 4.42261
6.73274 6.59589 6.46321 6.33457 6.20979 6.08875 5.97130 5.33493 5.14612 4.96764 4.79677
7.43533 7.26879 7.10782 6.95220 6.80169 6.65610 6.51523 5.75902 5.53705 5.32825 5.13166
10 8.11090 7.91272 7.72173 7.53763 7.36009 7.18883 7.02358 6.14457 5.88923 5.65022 5.42624
2345678
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education