
1.
Prepare
1.

Explanation of Solution
Bonds: Bonds are long-term promissory notes that are issued by a company while borrowing money from investors to raise fund for financing the operations.
Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.
Bond Premium: It occurs when the bonds are issued at a high price than the face value.
Effective-interest amortization method: Effective-interest amortization method is an amortization model that apportions the amount of bond discount or premium based on the market interest rate.
Prepare journal entry for the sale of the bonds on January 1.
Date | Account Title and Explanation | Post Ref | Debit ($) | Credit ($) | |||
January 1 | Cash (1) | 321,976 | |||||
Bond Premium (2) | 21,976 | ||||||
Bonds Payable | 300,000 | ||||||
(To record issuance of bonds payable at premium) |
Table (1)
- Cash is an asset and it is increased. So, debit it by $321,976.
- Bond Premium is an adjunct liability account and it is increased. So, credit it by $21,976.
- Bonds payable is a liability and it is increased. So, credit it by $300,000.
Working notes:
Determine the issuance price of the bonds.
Step 1: Calculate the cash interest payment for bonds.
Step 2: Calculate the present value of cash interest payment.
Particulars | Amount |
Interest payment (a) | $9,000 |
PV factor at annual market interest rate of 2% for 8 periods (b) | 7.32548 |
Present value | $65,929 |
Table (2)
Note: The present value factor for 8 periods at 2% interest would be 7.32548 (Refer Appendix E (Table E.2) in the book for present value factor).
Step 3: Calculate the present value of single principal payment of $300,000 (principal amount) at 2% for 8 periods.
Particulars | Amount |
Single principal payment (a) | $300,000 |
PV factor at annual market interest rate of 2% for 8 periods (b) | 0.85349 |
Present value | $256,047 |
Table (3)
Note: The present value factor for 8 periods at 2% interest would be 0.85349 (Refer Appendix E (Table E.1) in the book for present value factor).
Step 4: Calculate the issue price of the bonds.
Calculate the amount of bond premium.
2.
Prepare journal entry to record payment of interest on March 31.
2.

Explanation of Solution
Prepare journal entry for payment of interest on March 31.
Date | Account Title and Explanation | Post Ref | Debit ($) | Credit ($) | |||
March 31 | Interest Expense (4) | 6,440 | |||||
Bond Premium (5) | 2,560 | ||||||
Cash (3) | 9,000 | ||||||
(To record payment of interest) |
Table (4)
- Interest expense is an expense and it decreases the equity value. So, debit it by $6,440.
- Bond premium is an adjunct liability account and it is decreased. So, debit it by $2,560.
- Cash is an asset and it is decreased. So, credit it by $9,000.
Working notes:
Calculate cash interest payment.
Calculate interest expense.
Calculate bond premium.
Prepare Journal entry to record payment of interest on June 30.

Explanation of Solution
Prepare journal entry for payment of interest on June 30.
Date | Account Title and Explanation | Post Ref | Debit ($) | Credit ($) | |||
June 30 | Interest Expense (7) | 6,388 | |||||
Bond Premium (8) | 2,612 | ||||||
Cash (6) | 9,000 | ||||||
(To record payment of interest) |
Table (5)
- Interest expense is an expense and it decreases the equity value. So, debit it by $6,388.
- Bond premium is an adjunct liability account and it is decreased. So, debit it by $2,612.
- Cash is an asset and it is decreased. So, credit it by $9,000.
Working notes:
Calculate cash interest payment.
Calculate interest expense.
Calculate bond premium.
Prepare Journal entry to record payment of interest on September 30.

Explanation of Solution
Prepare journal entry for payment of interest on September 30.
Date | Account Title and Explanation | Post Ref | Debit ($) | Credit ($) | |||
September 30 | Interest Expense (10) | 6,336 | |||||
Bond Premium (11) | 2,664 | ||||||
Cash (9) | 9,000 | ||||||
(To record payment of interest) |
Table (6)
- Interest expense is an expense and it decreases the equity value. So, debit it by $6,336.
- Bond premium is an adjunct liability account and it is decreased. So, debit it by $2,664.
- Cash is an asset and it is decreased. So, credit it by $9,000.
Working notes:
Calculate cash interest payment.
Calculate interest expense.
Calculate bond Premium.
Prepare journal entry to record payment of interest on December 31.

Explanation of Solution
Prepare journal entry for payment of interest on December 31.
Date | Account Title and Explanation | Post Ref | Debit ($) | Credit ($) | |||
December 31 | Interest Expense (13) | 6,283 | |||||
Bond Premium (14) | 2,717 | ||||||
Cash (12) | 9,000 | ||||||
(To record payment of interest) |
Table (7)
- Interest expense is an expense and it decreases the equity value. So, debit it by $6,283.
- Bond premium is an adjunct liability account and it is decreased. So, debit it by $2,717.
- Cash is an asset and it is decreased. So, credit it by $9,000.
Working notes:
Calculate cash interest payment.
Calculate interest expense.
Calculate bond premium.
3.
Show the presentation of bonds payable that would be reported on December 31
3.

Explanation of Solution
Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.
Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources, on a specific date. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and
The presentation of bonds payable that would be reported on December 31 balance sheet is as shown below:
Corporation S Balance Sheet (Partial) As of December 31 | |
Long-term Liabilities: | |
Bonds Payable (15) | $311,423 |
Table (8)
Working note:
Calculate the amount of bonds payable on December 31.
Want to see more full solutions like this?
Chapter 10 Solutions
GB 112/212 MANAGERIAL ACC. W/ACCESS >C<
- A trial balance will balance even if A. a journal entry to record the purchase of equipment for cash of $52100 is not posted. B. a $13100 cash dividend is debited to dividends for $13100 and credited to cash for $1310. C. a $510 collection on accounts receivable is credited to accounts receivable for $510 without a corresponding debit. D. a purchase of supplies for $595 on account is debited to supplies for $595 and credited to accounts payable for $559.arrow_forwardEquipment costing $15200 is purchased by paying $3800 cash and signing a note payable for the remainder. The journal entry to record this transaction should include a credit to Notes Payable. credit to Notes Receivable. credit to Equipment. debit to Cash.arrow_forwardAt December 1, 2025, a company's Accounts Receivable balance was $20160. During December, the company had credit sales of $54000 and collected accounts receivable of $43200. At December 31, 2025, the Accounts Receivable balance is A. $30960 debit. B. $30960 credit. C. $74160 debit. D. $20160 debit.arrow_forward
- Whispering Winds Corp.'s trial balance at the end of its first month of operations reported the following accounts and amounts with normal balances: Cash $14720 Prepaid insurance 460 Accounts receivable 2300 Accounts payable 1840 Notes payable 2760 Common stock 4600 Dividends 460 Revenues 20240 Expenses 11500 Total credits on Whispering Winds Corp's trial balance are A. $28980. B. $30360. C. $29900. D. $29440arrow_forwardSwifty Corporation's trial balance reported the following normal balances at the end of its first year: Cash $14440 Prepaid insurance 530 Accounts receivable 2660 Accounts payable 2130 Notes payable 3190 Common stock 4100 Dividends 530 Revenues 22040 Expenses 13300 What amount did Swifty Corporation's trial balance show as total credits? A. $31460 B. $32520 C. $30930 D. $31990arrow_forwardMonty Inc., a major retailer of high-end office furniture, operates several stores and is a publicly traded company. The company is currently preparing its statement of cash flows. The comparative statement of financial position and income statement for Monty as at May 31, 2020, are as The following is additional information about transactions during the year ended May 31, 2020 for Monty Inc., which follows IFRS. Plant assets costing $69,000 were purchased by paying $47,000 in cash and issuing 5,000 common shares. In order to supplement its cash, Monty issued 4,000 additional common shares. Cash dividends of $35,000 were declered and paid at the end of the fiscal year. create direct method cash flow statement, show your workarrow_forward
- Following is additional information about transactiona during the year ended May 31, 2020 for Monty Inc., which follows IFRS. Plant assets costing $69,000 were purchased by paying $47,000 in cash and issuing 5,000 common shares. In order to supplement iRs cash, Monty Issued 4,000 additional common shares. Cash dividends of $35,000 were declared and paid at the end of the fiscal year. PRepare a direct Method Cash FLow using the format.arrow_forwardmake a trail balancearrow_forwardOn July 31, 2025, the general ledger of Cullumber Legal Services Inc. showed the following balances: Cash $4,960, Accounts Receivable $1,860, Supplies $620, Equipment $6,200, Accounts Payable $5,080, Common Stock $4,340, and Retained Earnings $4,220. During August, the following transactions occurred. Aug. 3 5 Collected $1,490 of accounts receivable due from customers. Received $1,610 cash for issuing common stock to new investors. 6 Paid $3,350 cash on accounts payable. 7 Performed legal services of $8,060, of which $3,720 was collected in cash and the remainder was due on account. 2 2 2 2 2 12 Purchased additional equipment for $1,490, paying $500 in cash and the balance on account. 14 Paid salaries $4,340, rent $1,120, and advertising expenses $340 for the month of August. 18 20 24 26 27 Collected the balance for the services performed on August 7. Paid cash dividend of $620 to stockholders. Billed a client $1,240 for legal services performed. Received $2,480 from Laurentian Bank;…arrow_forward
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
