Problem 14-1The following amortization and interest schedule reflects the issuance of 10-year bonds by Waterway Corporation on January 1, 2011, and the subsequent interest payments and charges. The company’s year-end is December 31, and financial statements are prepared once yearly. Amortization Schedule year cash interest amount unamortized carrying value 1/1/2011 10,114 168,886 2011 19,690 20,266 9,538 169,462 2012 19,690 20,335 8,893 170,107 2013 19,690 20,413 8,170 170,830 2014 19,690 20,500 7,360 171,640 2015 19,690 20,597 6,453 172,547 2016 19,690 20,706 5,437 173,563 2017 19,690 20,828 4,299 174,701 2018 19,690 20,964 3,025 175,975 2019 19,690 21,117 1,598 177,402 2020 19,690 21,288 179,000 (c) Determine the stated interest rate and the effective-interest rate. (Round answers to 0 decimal places, e.g. 18%.) The stated rate The effective rate (d) On the basis of the schedule above, prepare the journal entry to record the issuance of the bonds on January 1, 2011. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) DateAccount Titles and ExplanationDebitCreditJanuary 1, 2011 (e) On the basis of the schedule above, prepare the journal entry to reflect the bond transactions and accruals for 2011. (Interest is paid January 1.) (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) DateAccount Titles and ExplanationDebitCreditDecember 31, 2011 (f) On the basis of the schedule above, prepare the journal entries to reflect the bond transactions and accruals for 2018. Waterway Corporation does not use reversing entries. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) DateAccount Titles and ExplanationDebitCredit
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Problem 14-1
The following amortization and interest schedule reflects the issuance of 10-year bonds by Waterway Corporation on January 1, 2011, and the subsequent interest payments and charges. The company’s year-end is December 31, and financial statements are prepared once yearly.
Amortization Schedule
| year | cash | interest | amount unamortized |
carrying value |
| 1/1/2011 | 10,114 | 168,886 | ||
| 2011 | 19,690 | 20,266 | 9,538 | 169,462 |
| 2012 | 19,690 | 20,335 | 8,893 | 170,107 |
| 2013 | 19,690 | 20,413 | 8,170 | 170,830 |
| 2014 | 19,690 | 20,500 | 7,360 | 171,640 |
| 2015 | 19,690 | 20,597 | 6,453 | 172,547 |
| 2016 | 19,690 | 20,706 | 5,437 | 173,563 |
| 2017 | 19,690 | 20,828 | 4,299 | 174,701 |
| 2018 | 19,690 | 20,964 | 3,025 | 175,975 |
| 2019 | 19,690 | 21,117 | 1,598 | 177,402 |
| 2020 | 19,690 | 21,288 | 179,000 |
(c) Determine the stated interest rate and the effective-interest rate. (Round answers to 0 decimal places, e.g. 18%.)
The stated rate
The effective rate
(d) On the basis of the schedule above, prepare the
Date
Account Titles and Explanation
Debit
Credit
January 1, 2011
(e) On the basis of the schedule above, prepare the journal entry to reflect the bond transactions and accruals for 2011. (Interest is paid January 1.) (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date
Account Titles and Explanation
Debit
Credit
December 31, 2011
(f) On the basis of the schedule above, prepare the journal entries to reflect the bond transactions and accruals for 2018. Waterway Corporation does not use reversing entries. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date
Account Titles and Explanation
Debit
Credit
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