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Concept explainers
1.
1.
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Explanation of Solution
(a)
|
Table |
Value from table |
Amount ($) |
Present value ($) |
Par value |
B.1 |
0.6139 |
90,000 |
55,251 |
Annuity (Interest) |
B.3 |
7.7217 |
5,400 |
41,697 |
Bond’s issue price |
96,948 |
|||
Premium on bond |
|
|
|
6,948 |
Table (1)
Working notes:
Given,
Bonds par value is $90,000.
Rate of interest is 12%.
Time period is 0.05.
Compute the interest on bond,
Hence, interest on bond is $5,400.
(b)
Issue of bonds at premium on January 1, 2017
Date |
Account Title and Explanation |
Post. Ref. |
Debit ($) |
Credit ($) |
January 1 |
Cash |
96,948 |
||
Premium on bonds payable |
6,948 |
|||
Bonds payable |
90,000 |
|||
(To record the sold bonds at pre) |
Table (2)
- Cash account is the assets account. Since the cash is received, the value of assets is increased. So, debit the credit the cash account.
- Premium on bonds payable account is the liabilities account. Here, at the time of issue of the bonds premium has been given which increases the liabilities of the company. So, debit the Premium on bonds payable account.
- Bonds payable account is the liabilities account. Bonds has been sold, which increases the liabilities of the company. So, credit the bonds payable account.
2.
Bonds issue price.
2.
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Explanation of Solution
(a)
Cash flow |
Table |
Value from table |
Amount ($) |
Present value ($) |
Par value |
B.1 |
0.5584 |
90,000 |
50,255 |
Annuity (Interest) |
B.3 |
7.3601 |
5,400 |
39,745 |
Bond’s issue price |
90,000 |
Table (3)
Hence, bonds issue price is $90,000.
(b)
Sale of bonds at par on January 1, 2017
Date |
Account Title and Explanation |
Post. Ref. |
Debit ($) |
Credit ($) |
January 1 2017 |
Cash |
90,000 |
||
Bonds payable |
90,000 |
|||
(To record the sold bonds at par) |
Table (4)
- Cash account is the assets account. Since the cash is received, the value of assets is increased. So, debit the credit the cash account.
- Bonds payable account is the liabilities account. Bonds has been sold, which increases the liabilities of the company. So, credit the bonds payable account.
3.
Bonds issue price
3.
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Explanation of Solution
(a)
Cash flow |
Table |
Value from table |
Amount ($) |
Present value ($) |
Par value |
B.1 |
0.5083 |
90,000 |
45,747 |
Annuity (Interest) |
B.3 |
7.0236 |
5,400 |
37,927 |
Bond’s issue price |
83,674 |
|||
Discount on bond |
|
|
|
6,326 |
Table (5)
Hence, bonds issue price is $83,674.
(b)
Issue of bonds at discount on January 1, 2017
Date |
Account Title and Explanation |
Post. Ref. |
Debit ($) |
Credit ($) |
January 1 |
Cash |
83,674 |
||
Discount on bonds payable |
6,326 |
|||
Bonds payable |
90,000 |
|||
(To record the sold bonds at discount) |
Table (6)
- Cash account is the assets account. Since the cash is received, the value of assets is increased. So, debit the credit the cash account.
- Discount on bonds payable account is the liabilities account. Here, at the time of issue of the bonds discount has been given which decrease the liabilities of the company. So, debit the discount on bonds payable account.
- Bonds payable account is the liabilities account. Bonds has been sold, which increases the liabilities of the company. So, credit the bonds payable account.
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Chapter 10 Solutions
Financial and Managerial Accounting
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