Chapter 10, Problem 10.13AP

(a)(1)

To determine

Bonds

Bonds are a kind of interest bearing notes payable, usually issued by companies, universities and governmental organizations. It is a debt instrument used for the purpose of raising fund of the corporations or governmental agencies. If selling price of the bond is equal to its face value, it is called as par on bond. If selling price of the bond is lesser than the face value, it is known as discount on bond. If selling price of the bond is greater than the face value, it is known as premium on bond.

Straight-line amortization bond

Straight line method of amortization is a process of amortizing premium on bond or discount on bond, which allocates the same amount of interest expense in each period of interest payment.

Effective interest rate of amortization bond

Effective interest rate method of amortization is a process of amortizing premium on bond or discount on bond, which allocates the different amount of interest expense in each period of interest payment, but a constant percentage rate.

To Prepare: The journal entry to record the issuance of bonds of “J” Company on January 1, 2019.

To determine

(2)

To Prepare: The journal entry to record the accrued interest expense and premium on amortize bond for “J” Company on December 31, 2019.

(3)

To determine

To Prepare: The journal entry to record the payment of interest of “J” Company on January 1, 2020.

(4)

To determine

To Prepare: The journal entry to record the accrued interest expense and discount on amortize bond for Corporation L on December 31, 2020.

(b)

To determine

To Prepare: The proper long-term liabilities section balance sheet presentation for the liability of bonds payable on 31^st December 2020 of “J” Company.

(c)(1)

To determine

To Prepare: The interest expenses amount shows in the year 2020 of “J” Company.

(2)

To determine

To Ascertain: If the bond interest expense reported in the year 2020 is greater than the amount reported, lesser than the amount reported or same amount reported, if the Company used the straight-line method of amortization.