
1.
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 |
4,859,980 |
||
Premium on bonds payable |
895,980 |
|||
Bonds payable |
4,000,000 |
|||
(To record the sold bonds at premium) |
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.
- Premium on bonds payable account is the liabilities account. Here, at the time of issue of the bonds premium has been given which increase the liabilities of the company. So, credit 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.
Cash payment, straight line amortization and bonds interest expense.
2.

Explanation of Solution
(a)
Given,
Amount of bond is $4,000,000.
Rate of interest is 6%.
Time period is 0.5.
Formula to calculate the cash at the time of issue of bond,
Substitute $4,000,000 for the bond value, 6% for the rate on interest and 0.5 for time period.
Hence, cash payment account is $120,000.
(b)
Given,
Par value of bond is $4,000,000.
Issued
Number of semiannual period is 30.
Formula to calculate the straight line discount amortization,
Substitute, $895,980 for the discount on bond and 30 for number of semiannual period,
Hence, amortization is $29,866.
Working note:
Calculation of discount on bond,
(c)
Given,
Cash payment is $120,000.
Amortization expense is $29,866.
Formula to calculate bonds interest payment expense,
Substitute $120,000 for cash payment and $29,866 for amortization.
Hence, bonds interest expense is $90,134.
3.
Total amount of interest payable on bond.
3.

Explanation of Solution
Particulars |
Amounts ($) |
30 Regular outlays of $120,000 |
3,600,000 |
Par value at maturity |
4,000,000 |
Net repaid |
7,600,000 |
Less: Money borrowed |
4,895,980 |
Bond interest expense |
2,704,020 |
Table (2)
Hence, total bond interest expense is $2,704,202.
4.
First two year of an amortization table.
4.

Explanation of Solution
End of semiannual period |
Unamortized Discount ($) |
Carrying value ($) |
January 1, 2017 |
895,980 |
4,895,980 |
June 30, 2017 |
866,114 |
4,866,114 |
December 31, 2017 |
836,248 |
4,836,248 |
June 30 ,2018 |
806,382 |
4,806,382 |
December 31, 2018 |
776,516 |
4,775,516 |
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 |
90,134 |
||
Premium on bonds payable |
29,866 |
|||
Cash |
120,000 |
|||
(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
- 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 company. Now premium on bonds payable has been paid which decrease the liability. So, debit the premium 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 |
90,134 |
||
Premium on bonds payable |
29,866 |
|||
Cash |
120,000 |
|||
(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
- 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 company. Now premium on bonds payable has been paid which decrease the liability. So, debit the premium 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 & Managerial Accounting: Information for Decisions w Access Card, 5th edition, ACC 211 & 212, Northern Virginia Community College
- You are the partner-in-charge of a large metropolitan office of a regional public accounting firm. Two members of your professional staff have come to you to discuss problems that may affect the firm's independence. Neither of these situations has been specifically answered by the AICPA Professional Ethics Division. Case 1: Don Moore, a partner in the firm, has recently moved into a condominium that he shares with his girlfriend, Joan Scott. Moore owns the condominium and pays all the expenses relating to its maintenance. Otherwise, the two are self-supporting. Scott is a stockbroker, and recently she has started acquiring shares in one of the audit clients of this office of the public accounting firm. The shares are held in Scott's name. At present, the shares are not material in relation to her net worth. 1. What arguments would indicating that the firm's independence has not been impaired? 2. What arguments would indicating that the firm's independence has been impaired? 3. Which…arrow_forwardExamine the importance of proper evaluation of investment projects.arrow_forwardAndretti Company has a single product called a Dak. The company normally produces and sells 60,000 Daks each year at a selling price of $32 per unit. The company’s unit costs at this level of activity are given below: Direct materials $ 10.00 Direct labor 4.50 Variable manufacturing overhead 2.30 Fixed manufacturing overhead 5.00 ($300,000 total)Variable selling expenses 1.20 Fixed selling expenses 3.50 ($210,000 total)Total cost per unit $ 26.50 The company has 1,000 Daks on hand with some irregularities that make it impossible to sell them at the normal price through regular distribution channels. What unit cost figure is relevant for setting a minimum selling price to liquidate these units?arrow_forward
- The financial manager at Rico Ltd had to choose between these two projects, alpha and beta, which have the following net cash inflows: Year Alpha Beta 1 5,000 36,000 2 18,500 36,500 3 36,200 37,000 4 123,000 175,000 Each project requires an initial investment of 118,000. No scrap values are forecast. Required:1. Calculate the payback period for each project. Answers must be expressed in years and months. Which project should be chosen and why? 2. Calculate the Net Present Value (NPV) for each project, using a discount rate of 12%. Which project would you choose and why? 3. Calculate the internal Rate of Return for each project. Which project should be chosen and Why?arrow_forwardCritically evaluate the strengths and limitations of the Capital Asset Pricing Model.arrow_forward1. Provide a brief history of the tax system in Jamaica, highlighting the different types of taxes used in the country. 2. Identify and discuss at least 6 problems with the Jamaican tax system and then provide recommendations to alleviate the problems.arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





