Explanation Bonds: Bonds are long-term promissory notes that are represented 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 $1,000 per bond, to raise fund for financing the operations. Effective-interest amortization method: Effective-interest amortization methodit is an amortization model that apportions the amount of bond discount or premium based on the market interest rate. Prepare journal entry for payment of interest using simplified effective interest method. Date Account Title and Explanation Post Ref Debit ($) Credit ($) 2015 Interest Expense (2) 5,700 December 31 Cash (1) 5,000 Bonds payable, Net(3) 700 (To record annual payment of interest) Table (1) Interest expense is an expense and it decreases the equity value. So, debit it by $5,700. Cash is an asset and it is decreased. So, credit it by $5,000. Bonds payable, net is a liability and it is increased. So, credit it by $700. Working notes: Calculate cash interest payment...

Connect 1 Semester Access Card for Fundamentals of Financial Accounting

5th Edition

ISBN: 9781259128547

Author: Fred Phillips Associate Professor, Robert Libby, Patricia Libby

Publisher: McGraw-Hill Education

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Chapter 10, Problem 10.17ME

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To prepare: Journal entry to record payment of interest on December 31, 2015.

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Chapter 10, Problem 10.16ME

Chapter 10, Problem 10.1E

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Chapter 10 Solutions

Connect 1 Semester Access Card for Fundamentals of Financial Accounting

Ch. 10 - Prob. 1Q Ch. 10 - Prob. 2Q Ch. 10 - What three factors influence the dollar amount...Ch. 10 - Prob. 4Q Ch. 10 - Prob. 5Q Ch. 10 - Prob. 6Q Ch. 10 - Prob. 7Q Ch. 10 - If a company has a long-term loan that has only...Ch. 10 - What are the reasons that some bonds are issued at...Ch. 10 - Prob. 10Q

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Journal entry to record payment of interest on December 31, 2015.

Solution Summary: The author explains the effective-interest amortization method, which apportions the amount of bond discount or premium based on the market interest rate.

To prepare: Journal entry to record payment of interest on December 31, 2015.

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Chapter 10 Solutions