![Financial & Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9780078025778/9780078025778_largeCoverImage.gif)
a)
Prepare a
a)
![Check Mark](/static/check-mark.png)
Explanation of Solution
Bonds: Bonds are debt securities which are issued by issuers and pay a fixed interest revenue to the bondholders.
Prepare a journal entry to record the issuance of the bonds on August 1, 2015.
Date | Account title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
August 1, 2015 | Cash | 10,250,000 | ||
Bonds payable | 10,000,000 | |||
Bonds interest payable | 250,000 | |||
(Record the issuance of bonds and 3 months accrued interest) |
Table (1)
Description:
- Cash (asset) is increased by $10,250,000. Thus, it is debited.
- Bonds payable (liability) is increased by $10,000,000. Thus, it is credited.
- Bonds interest payable (liability) is increased by 250,000. Thus, it is credited.
Working note:
Calculate the bonds interest payable (3 months accrued interest).
b)
Prepare a journal entry to record the first semi-annual interest payment on the issued bond on November 1, 2015.
b)
![Check Mark](/static/check-mark.png)
Explanation of Solution
Interest: Interest is an amount paid on the issue price of the bonds by the company at stated dates at stated rate of interest.
Prepare a journal entry to record the first semi-annual interest payment on the issued bond on November 1, 2015.
Date | Account title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
November 1, 205 | Bonds interest payable | 250,000 | ||
Bonds interest expense | 250,000 | |||
Cash | 500,000 | |||
(Record the first semi-annual interest on bonds) |
Table (2)
Description:
- Bonds interest payable (liability) is decreased by 250,000. Thus, it is debited.
- Bond interest expense (decreases the equity) is increased by $250,000. Thus, it is debited.
- Cash (asset) is decreased by $500,000. Thus, it is credited.
Working note:
The bonds are dated May 1, 2015. The bonds were issued on August 1, 2015, at 100 plus three months’ accrued interest. Interest rate is 10%. May to July is 3 months; August to October is 3 months (interest incurred period).
Calculate the bonds interest payable (3 months accrued interest).
Calculate the bonds interest payable.
c)
Prepare a journal entry to record interest expense accrued through year-end on December 31, 2015.
c)
![Check Mark](/static/check-mark.png)
Explanation of Solution
Accrued expenses: Accrued expenses are the expenses that have been incurred but have not been paid yet. These accrued expenses create accrued liabilities. For the portion of payment made, accrued liabilities would be reduced by way of passing an
Example: Accrued salaries expense and accrued interest expense.
Prepare a journal entry to record interest expense accrued through year-end on December 31, 2015.
Date | Account title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
December 31, 2015 | Bonds interest expense | 166,667 | ||
Bonds interest payable | 166,667 | |||
(Record the issuance of bonds and 2 months accrued interest) |
Table (3)
Description:
- Bond interest expense (decreases the equity) is increased by $166,667. Thus, it is debited.
- Bonds interest payable (liability) is increased by 166,667. Thus, it is credited.
Working note:
Calculate the accrued interest (2 months accrued interest).
d)
Prepare a journal entry to record the second semi-annual interest payment on May 1, 2016.
d)
![Check Mark](/static/check-mark.png)
Explanation of Solution
Prepare a journal entry to record the second semi-annual interest payment on the issued bonds on May 1, 2016.
Date | Account title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
May 1, 2016 | Bonds interest payable | 166,667 | ||
Bonds interest expense | 333,333 | |||
Cash | 500,000 | |||
(Record the first semi-annual interest on bonds) |
Table (4)
Description:
- Bonds interest payable (liability) is decreased by 166,667. Thus, it is debited.
- Bond interest expense (decreases the equity) is increased by $333,333. Thus, it is debited.
- Cash (asset) is decreased by $500,000. Thus, it is credited.
Working note:
In the second semi-annual interest payment, 2 months interest is recorded as accrued interest for a year end adjustment. This adjustment entry is reversed and interest expense is calculated for remaining 4 months (January to April).
Calculate the bonds interest expense.
e)
Find the prevailing market rate of interest on the date that the bonds were issued and explain the same.
e)
![Check Mark](/static/check-mark.png)
Explanation of Solution
10% is the prevailing market rate of interest on the date that the bonds were issued. The reason for it is the bonds were issued at par ($100) and the market rate had to have equalled the contract interest rate printed on the bonds.
Want to see more full solutions like this?
Chapter 10 Solutions
Financial & Managerial Accounting
- 9 A B C D E 4 Ramsey Miller Style, Inc. manufactures a product which requires 15 pounds of direct materials at a cost of $8 5 per pound and 5.0 direct labor hours at a rate of $17 per hour. Variable overhead is budgeted at a rate of $3 per direct labor hour. Budgeted fixed overhead is $433,000 per month. The company's policy is to end each month with direct materials inventory equal to 45% of the next month's direct materials requirement, and finished 7 goods inventory equal to 60% of next month's sales. August sales were 13,400 units, and marketing expects 8 sales to increase by 500 units in each of the upcoming three months. At the end of August, the company had 9 95,850 pounds of direct materials in inventory, and 8,340 units in finished goods inventory. 10 11 August sales 12 Expected increase in monthly sales 13 Desired ending finished goods (units) 14 Selling price per unit 15 Direct materials per unit 16 Direct materials cost 17 Direct labor hours (DLHS) per unit 18 Direct labor…arrow_forwardSherrod, Incorporated, reported pretax accounting income of $84 million for 2024. The following information relates to differences between pretax accounting income and taxable income: a. Income from installment sales of properties included in pretax accounting income in 2024 exceeded that reported for tax purposes by $3 million. The installment receivable account at year-end 2024 had a balance of $4 million (representing portions of 2023 and 2024 installment sales), expected to be collected equally in 2025 and 2026. b. Sherrod was assessed a penalty of $4 million by the Environmental Protection Agency for violation of a federal law in 2024. The fine is to be paid in equal amounts in 2024 and 2025. c. Sherrod rents its operating facilities but owns one asset acquired in 2023 at a cost of $88 million. Depreciation is reported by the straight-line method, assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight- line depreciation the…arrow_forwardProvide answerarrow_forward
- $ 36,000 204,000 The Drysdale, Koufax, and Marichal partnership has the following balance sheet immediately prior to liquidation: Cash Noncash assets Liabilities Drysdale, loan $ 50,000 10,000 Total assets $ 240,000 Drysdale, capital (50%) Koufax, capital (30%) Marichal, capital (20%) Total liabilities and capital 70,000 60,000 50,000 $ 240,000 Required: a-1. Determine the maximum loss that can be absorbed in Step 1. Then, assuming that this loss has been incurred, determine the next maximum loss that can be absorbed in Step 2. a-2. Liquidation expenses are estimated to be $15,000. Prepare a predistribution schedule to guide the distribution of cash. b. Assume that assets costing $74,000 are sold for $60,000. How is the available cash to be divided? Complete this question by entering your answers in the tabs below.arrow_forwardCalculate GP ratio round answers to decimal placearrow_forwardWhat is the gross profit percentage for this periodarrow_forward
- The company's gross margin percentage is ?arrow_forwardProblem 19-13 (Algo) Shoney Video Concepts produces a line of video streaming servers that are linked to personal computers for storing movies. These devices have very fast access and large storage capacity. Shoney is trying to determine a production plan for the next 12 months. The main criterion for this plan is that the employment level is to be held constant over the period. Shoney is continuing in its R&D efforts to develop new applications and prefers not to cause any adverse feelings with the local workforce. For the same reason, all employees should put in full workweeks, even if that is not the lowest-cost alternative. The forecast for the next 12 months is MONTH FORECAST DEMAND January February March April 530 730 830 530 May June 330 230 July 130 August 130 September 230 October 630 730 800 November December Manufacturing cost is $210 per server, equally divided between materials and labor. Inventory storage cost is $4 per unit per month and is assigned based on the ending…arrow_forwardCompute 007s gross profit percentage and rate of inventory turnover for 2016arrow_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
![Text book image](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9780134475585/9780134475585_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781259722660/9781259722660_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781259726705/9781259726705_smallCoverImage.gif)