
Bonds:
Bonds are a kind of the security which an investor invests in an entity for a specific period at a fixed interest rate. These bonds are issued at that time when entity needs huge amount of fund.
1.

Explanation of Solution
Issue of bonds at discount on January 1, 2017
Date | Account Title and Explanation | Post.Ref. | Debit($) | Credit($) |
January 1 | Cash | 3,010,000 | ||
Discount on bonds payable | 390,000 | |||
Bonds payable | 3,400,000 | |||
(To record the sold bonds at discount) |
Table (1)
- 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.
2.
Cash payment, straight line amortization and bonds interest expense.
2.

Explanation of Solution
(a)
Given,
Amount of bond is $3,400,000.
Rate of interest is 10%.
Time period is 0.5.
Formula to calculate the cash at the time of issue of bond,
Substitute $3,400,000 for the bond value, 10% for the rate on interest and 0.5 for time period.
Hence, cash payment is $170,000.
(b)
Given,
Par value of bond is $3,400,000.
Issued
Number of semiannual period is 20.
Formula to calculate the straight line discount amortization,
Substitute $390,000 for the discount on bond and 20 for number of semiannual period.
Hence, amortization is $19,500.
Working note:
Calculation of discount on bond,
(c)
Given,
Cash payment is $170,000.
Amortization expense is $19,500.
Formula to calculate bonds interest payment expense,
Substitute $170,000 for cash payment and $19,500 for amortization.
Hence, bonds interest expense is $189,500.
3.
Total amount of interest payable on bond.
3.

Explanation of Solution
Particulars | Amounts($) |
20 Regular outlays of $170,000 | 3,400,000 |
Par value at maturity | 3,400,000 |
Net repaid | 6,800,000 |
Less: Money borrowed | 3,010,000 |
Bond interest expense | 3,790,000 |
Table (2)
Hence, total bond interest expense is $3,790,000.
4.
First two year of an amortization table.
4.

Explanation of Solution
End of semiannual period | UnamortizedDiscount ($) | Carrying value ($) |
January 1, 2017 | 390,000 | 3,010,000 |
June 30, 2017 | 370,500 | 3,029,500 |
December 31, 2017 | 351,000 | 3,049,000 |
June 30 ,2018 | 331,500 | 3,068,500 |
December 31, 2018 | 312,000 | 3,088,000 |
Table (3)
5.
Journal entry to record the first two interest payment.
5.

Explanation of Solution
Payment of interest on June 30, 2017
Date | Account Title and Explanation | Post.Ref. | Debit($) | Credit($) |
June 30 | Bonds interest expense | 189,500 | ||
Discount on bonds payable | 19,500 | |||
Cash | 170,000 | |||
(To record the paid semiannual interest and record amortization) |
Table (4)
- Bonds interest account is an expense account. Interest has been paid by the company which increases the liabilities of the company. So, debit the bonds interest expense account
- Discount on bonds payable account is the liabilities account. Here, at the time of issue of the bonds discount has been given which increases the liabilities of company. So, credit the discount on bonds payable account.
- Cash is an asset account. Since the Cash is paid, the value of assets is decreased. So, credit the Cash account.
Payment of interest on December 31, 2017
Date | Account Title and Explanation | Post.Ref. | Debit($) | Credit($) |
Dec 31 | Bonds interest expense | 189,500 | ||
Discount on bonds payable | 19,500 | |||
Cash | 170,000 | |||
(To record the paid semiannual interest and record amortization) |
Table (5)
- Bonds interest account is an expense account. Interest has been paid by the company which increases the liabilities of the company. So, debit the bonds interest expense account
- Discount on bonds payable account is the liabilities account. Here, at the time of issue of the bonds discount has been given which increases the liabilities of company. So, credit the discount on bonds payable account.
- Cash is an asset account. Since the cash is paid, the value of assets is decreased. So, credit the cash account.
Want to see more full solutions like this?
Chapter 10 Solutions
FINANCIAL ACCT.FUND.(LOOSELEAF)
- Get correct answer with general accounting questionarrow_forwardGive me answer pleasearrow_forwardSummit Industries had operating earnings of $500,000 for the year. The company sold shares of stock it had purchased in another company for $260,000. The original purchase price of the stock was $200,000, and it was held for 10 months before being sold. a. What is the amount of capital gains realized during the year? b. How much total taxable income did the firm earn during the year?arrow_forward
- Roslyn's Boutique had an accounts receivable balance of $320,000 at the beginning of the year and a year-end balance of $460,000. Net credit sales for the year totaled $2,800,000. What was the average collection period?arrow_forwardHiarrow_forwardSummit Industries' activities for the first quarter of 2023 are as follows: January: 4,000 machine hours, $7,800 electrical cost • February: 4,500 machine hours, $8,600 electrical cost • March: 5,200 machine hours, $9,800 electrical cost Using the high-low method, calculate the cost per machine hour.arrow_forward
- Do fast answer of this accounting questionsarrow_forwardOption? General accounting questionarrow_forwardGHI Corporation has a factory with fixed costs of $600,000 and a production capacity of 200,000 units annually. The product has a 35% contribution margin, and the company has a target profit of $400,000. What does the selling price per unit need to be at full production?arrow_forward
- Riverside Inc. has a current accounts receivable balance of $450,000. Credit sales for the year just ended were $5,200,000. a) What is the company's receivables turnover? b) What is the company's days' sales in receivables? c) How long did it take on average for credit customers to pay off their accounts during the past year?arrow_forwardI want to correct answer general accounting questionarrow_forwardSolve with explanation and accounting questionarrow_forward
- College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
- Financial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage LearningIntermediate 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





