(a)
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.
Redemption of Bonds
The process of repaying the sale amount of bonds to bondholders at the time of maturity or before the maturity period is called as redemption of bonds. It is otherwise called as retirement of bonds.
To Prepare: The
(a)
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Answer to Problem 10.7AP
Prepare the journal entry to record payment of interest expenses for Corporation L on January 1, 2017 as shown below:
Date | Account title and Explanation | Debit | Credit |
January 1, 2017 | Interest payable | $96,000 | |
Cash | $96,000 | ||
(To record the payment of interest expense for Corporation L ) |
Table (1)
Explanation of Solution
- Interest payable is a current liability, and decreased. Therefore, debit interest payable account for $96,000.
- Cash is a current asset, and decreased. Therefore, credit cash account for $96,000.
(b)
To Prepare: The journal entry to record the accrued interest expense and discount on amortize bond for Corporation L on December 31, 2017.
(b)
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Answer to Problem 10.7AP
Prepare the journal entry to record the accrued interest expense and discount on amortize bond for Corporation L on December 31, 2017 as shown below:
Date | Account title and Explanation | Debit | Credit |
December 31, 2017 | Interest expense (3) | $98,400 | |
Discount on bonds payable (1) | $2,400 | ||
Interest payable (2) | $96,000 | ||
(To record the accrued interest expense and discount on amortize bond for Corporation L) |
Table (2)
Working notes:
Calculate Discount on bonds payable is shown below:
Calculate interest payable of Corporation L is shown below:
Calculate an interest expense of Corporation L is shown below:
Explanation of Solution
- Interest expense is a component of
stockholders’ equity , and decreased it. Therefore, debit interest expense account for $98,400. - Discount on bonds payable is a contra liability, and increased. Therefore, credit discount on bonds payable for $2,400.
- Interest payable is a current liability, and increased. Therefore, credit interest payable account for $96,000.
(c)
To Prepare: The journal entry to record the redemption on bonds for Corporation L on January 1, 2018.
(c)
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Answer to Problem 10.7AP
Prepare the journal entry to record the redemption on bonds for Corporation L on January 1, 2018 as shown below:
Date | Account title and Explanation | Debit | Credit |
January 1, 2018 | Bonds payable | $400,000 | |
Loss on redemption of bonds (3) | $11,600 | ||
Discount on bonds payable (2) | $3,600 | ||
Cash (1) | $408,000 | ||
(To record the redemption of bonds for Corporation L at call price is $102) |
Table (3)
Working notes:
Calculate cash amount paid for redemption of bonds of Corporation L is shown below:
Calculate the discount on bonds payable for redemption of bonds of Corporation L is shown below:
Calculate the Loss on redemption of bonds of Corporation L is shown below:
Explanation of Solution
- Bonds payable is a long-term liability, and decreased. Therefore, debit bonds payable account for $400,000.
- Loss on redemption of bonds is a component of stockholders’ equity, and decreased. Therefore, debit loss on redemption of bonds account for $11,600.
- Discount on bonds payable is a contra liability, and increased. Therefore, credit discount on bonds payable account for $3,600.
- Cash is a current asset, and decreased. Therefore, credit cash account for $408,000.
(d)
To Prepare: The
(d)
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Answer to Problem 10.7AP
Prepare the adjusting journal entry to record the accrued interest expense and discount on amortize bond for Corporation L on December 31, 2018 as shown below:
Date | Account title and Explanation | Debit | Credit |
December 31, 2018 | Interest expense (3) | $82,000 | |
Discount on bonds payable (1) | $2,000 | ||
Interest payable (2) | $80,000 | ||
(To record the accrued interest expense and discount on amortize bond for Corporation L) |
Table (3)
Working notes:
Calculate remaining discount on bonds payable is shown below:
Calculate interest payable of Corporation L is shown below:
Calculate an interest expense of Corporation L is shown below:
Explanation of Solution
- Interest expense is a component of stockholders’ equity, and decreased it. Therefore, debit interest expense account for $98,400.
- Discount on bonds payable is a contra liability, and increased. Therefore, credit discount on bonds payable for $2,400.
- Interest payable is a current liability, and increased. Therefore, credit interest payable account for $96,000.
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Chapter 10 Solutions
Financial Accounting: Tools for Business Decision Making, 8th Edition
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningFinancial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage Learning
- Excel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning
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