FINANCIAL & MANAGERIAL ACCOUNTING
FINANCIAL & MANAGERIAL ACCOUNTING
7th Edition
ISBN: 9781260368192
Author: Wild
Publisher: MCG CUSTOM
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Chapter 10, Problem 3PSA

1.

To determine

Journal entry to record the bonds’ issuance.

1.

Expert Solution
Check Mark

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.

To determine

Cash payment, straight line amortization and bonds interest expense.

2.

Expert Solution
Check Mark

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,

   Cashpayment=Bondvalue×Rateofinterest×Timeperiod

Substitute $4,000,000 for the bond value, 6% for the rate on interest and 0.5 for time period.

   Cashpayment=$4,000,000×6%×0.5 =$120,000

Hence, cash payment account is $120,000.

(b)

Given,
Par value of bond is $4,000,000.
Issued price of bond is $4,895,980.
Number of semiannual period is 30.

Formula to calculate the straight line discount amortization,

   Amortization(straightlinediscount)= Discountonbond Numberofsemiannualperiod

Substitute, $895,980 for the discount on bond and 30 for number of semiannual period,

   Amortization(straightlinediscount)= $895,980 30semiannualperiod = $895,980 30semiannualperiod =$29,866

Hence, amortization is $29,866.

Working note:

Calculation of discount on bond,

   Discountonbond=IssuedpriceofbondParvalueofbond =$4,895,980$4,000,000 =$895,980

(c)

Given,
Cash payment is $120,000.
Amortization expense is $29,866.

Formula to calculate bonds interest payment expense,

   Bondsinterestexpense=CashpaymentAmortization

Substitute $120,000 for cash payment and $29,866 for amortization.

   Bondsinterestexpense=$120,000$29,866 =$90,134

Hence, bonds interest expense is $90,134.

3.

To determine

Total amount of interest payable on bond.

3.

Expert Solution
Check Mark

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.

To determine

First two year of an amortization table.

4.

Expert Solution
Check Mark

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.

To determine

Journal entry to record the first two interest payment.

5.

Expert Solution
Check Mark

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.

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Chapter 10 Solutions

FINANCIAL & MANAGERIAL ACCOUNTING

Ch. 10 - Prob. 6DQCh. 10 - Prob. 7DQCh. 10 - Prob. 8DQCh. 10 - Prob. 9DQCh. 10 - Prob. 10DQCh. 10 - What is the issue price of a $2,000 bond sold at...Ch. 10 - Prob. 12DQCh. 10 - Prob. 13DQCh. 10 - Prob. 14DQCh. 10 - Prob. 15DQCh. 10 - Prob. 16DQCh. 10 - Prob. 17DQCh. 10 - Prob. 18DQCh. 10 - Prob. 19DQCh. 10 - Prob. 20DQCh. 10 - Prob. 1QSCh. 10 - Prob. 2QSCh. 10 - Prob. 3QSCh. 10 - Prob. 4QSCh. 10 - Prob. 5QSCh. 10 - Prob. 6QSCh. 10 - Recording bond issuance and discount amortization...Ch. 10 - Prob. 8QSCh. 10 - Prob. 9QSCh. 10 - Prob. 10QSCh. 10 - Prob. 11QSCh. 10 - Prob. 12QSCh. 10 - Prob. 13QSCh. 10 - Prob. 14QSCh. 10 - Prob. 15QSCh. 10 - Prob. 16QSCh. 10 - Prob. 17QSCh. 10 - Prob. 18QSCh. 10 - Prob. 19QSCh. 10 - Prob. 20QSCh. 10 - Prob. 1ECh. 10 - Prob. 2ECh. 10 - Prob. 3ECh. 10 - Prob. 4ECh. 10 - Prob. 5ECh. 10 - Prob. 6ECh. 10 - Prob. 7ECh. 10 - Prob. 8ECh. 10 - Prob. 9ECh. 10 - Prob. 10ECh. 10 - Prob. 11ECh. 10 - Prob. 12ECh. 10 - Prob. 13ECh. 10 - Prob. 14ECh. 10 - Prob. 15ECh. 10 - Prob. 16ECh. 10 - Prob. 17ECh. 10 - Prob. 18ECh. 10 - Prob. 19ECh. 10 - Prob. 20ECh. 10 - Prob. 1PSACh. 10 - Prob. 2PSACh. 10 - Prob. 3PSACh. 10 - Prob. 4PSACh. 10 - Prob. 5PSACh. 10 - Prob. 6PSACh. 10 - Prob. 7PSACh. 10 - Prob. 8PSACh. 10 - Prob. 9PSACh. 10 - Prob. 10PSACh. 10 - Prob. 11PSACh. 10 - Prob. 1PSBCh. 10 - Prob. 2PSBCh. 10 - Prob. 3PSBCh. 10 - Prob. 4PSBCh. 10 - Prob. 5PSBCh. 10 - Prob. 6PSBCh. 10 - Prob. 7PSBCh. 10 - Prob. 8PSBCh. 10 - Prob. 9PSBCh. 10 - Problem 10-10BB Effective Interest: Amortization...Ch. 10 - Prob. 11PSBCh. 10 - Prob. 10SPCh. 10 - Prob. 1BTNCh. 10 - Prob. 2BTNCh. 10 - Prob. 3BTNCh. 10 - Prob. 4BTNCh. 10 - Prob. 5BTNCh. 10 - Prob. 6BTNCh. 10 - Prob. 7BTNCh. 10 - Prob. 8BTNCh. 10 - Prob. 9BTN
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