FUND. OF FINANCIAL ACCT. (LL) W/CONNECT
FUND. OF FINANCIAL ACCT. (LL) W/CONNECT
6th Edition
ISBN: 9781260725254
Author: PHILLIPS
Publisher: MCG
bartleby

Videos

Question
Book Icon
Chapter 10, Problem 7PB

1.

To determine

Prepare a bond amortization schedule.

1.

Expert Solution
Check Mark

Explanation of Solution

Amortization Schedule: An amortization schedule is a table that shows the details of each loan payment allocated between the principal amount and the overdue interest along with the beginning and ending balance of the loan. From the amortization schedule of the loan, the periodical interest expense, total interest expense and total payment made are known.

Prepare bond amortization schedule as below:

Bond premium amortization schedule – Effective-interest amortization method
Year Ending December 31

Cash Paid

(A)

(2)

 Interest Expense

(B)

Premium

Amortized

(C) = (AB)

Bonds Payable

(D)

Premium on Bonds Payable

(E)

Carrying Value

(F) =(D+E)

01/01/2018$100,000

$2,070

(1)

$102,070
12/31/2018$5,000$4,338 $662$100,000$1,408$101,408
12/31/2019$5,000$4,310 $690$100,000 $718$100,718
12/31/2020$5,000

$4,282

(rounded)

$718$100,0000$100,000

Table (1)

Working note (1):

Calculate the premium on bonds payable.

Premium on bonds payable = (Cash receivedFace value )   =$102,070$100,000=$2,070

Working note (2):

Calculate the amount of cash paid.

 Cash paid = (Face value×Stated interest rate×Interesttimeperiod)=$100,000×5100×1212=$5,000

Note: Premium on bonds payable for each period is calculated by the following formula:

Premium on bonds payable = [(Previous balance of premium on bonds payable)  Premium amortized]

2.

To determine

Prepare journal entry to record the issuance of the bonds on January 1, 2018.

2.

Expert Solution
Check Mark

Explanation of Solution

Bonds: Bonds are long-term promissory notes that are represented by a company while borrowing money from investors to raise fund for financing the operations.

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.

Premium on bonds payable: It occurs when the bonds are issued at a higher price than the face value.

Effective-interest amortization method: Effective-interest amortization method it is an amortization model that apportions the amount of bond discount or premium based on the market interest rate.

Prepare journal entry for cash proceeds from the issuance of the bonds on January 1, 2018.

DateAccount Title and ExplanationPost RefDebit ($)Credit ($)
January 1, 2018Cash   102,070
    Premium on Bonds Payable (3)2,070
    Bonds Payable  100,000
(To record the issuance of bonds payable at discount) 

Table (2)

  • Cash is an asset and it increases the value of assets. So, debit it by $102,070.
  • Premium on Bonds Payable is an adjunct liability account and it increases the value of liabilities. So, credit it by $2,070.
  • Bonds payable is a liability and it increases the value of liabilities. So, credit it by $100,000.

Working note (3):

Calculate the premium on bonds payable.

Premium on bonds payable = (Cash receivedFace value )   =$102,070$100,000=$2,070

3.

To determine

Prepare journal entry to record the interest payment on December 31, 2018 and 2019.

3.

Expert Solution
Check Mark

Explanation of Solution

Prepare journal entry to record the payment of interest and amortization of premium on bonds at December 31, 2018.

DateAccount Title and ExplanationPost RefDebit ($)Credit ($)
December 31, 2018Interest Expense (5) 4,338
Premium on Bonds Payable  (6) 662
    Cash (4)5,000
(To record the payment of interest and amortization of premium on bonds)   

Table (3)

  • Interest expense is a component and it decreases the equity value. So, debit it by $4,338.
  • Premium on Bonds Payable is an adjunct liability account and it decreases the value of liabilities. So, debit it by $662.
  • Cash is an asset and it decreases the value of assets. So, credit it by $5,000.

Working note (4):

Calculate the cash interest payment.

Cash Interest Payment=(Face value×Stated interest rate×Interest time period)=$100,000×5100×1 year=$5,000

Working note (5):

Calculate the interest expense.

Interest expense=Carrying amount ×Market interest×Time=$102,070×4.25100×1 year=$4,338

Working note (6):

Calculate the premium amortized.

Premium amortized=Cash interest payment Interest Expense =$5,000 (5)$4,338 (5)=$662 

Prepare journal entry to record the payment of interest and amortization of premium on bonds at December 31, 2019.

DateAccount Title and ExplanationPost RefDebit ($)Credit ($)
December 31, 2019Interest Expense (8) 4,310
Premium on Bonds Payable  (9) 690
    Cash (7)5,000
(To record the payment of interest and amortization of premium on bonds)   

Table (4)

  • Interest expense is a component and it decreases the equity value. So, debit it by $4,310.
  • Premium on Bonds Payable is an adjunct liability account and it decreases the value of liabilities. So, debit it by $690.
  • Cash is an asset and it decreases the value of assets. So, credit it by $5,000.

Working note (7):

Calculate the cash interest payment.

Cash Interest Payment=(Face value×Stated interest rate×Interest time period)=$100,000×5100×1 year=$5,000

Working note (8):

Calculate the interest expense.

Interest expense=Carrying amount ×Market interest×Time=($102,070$662)×4.25100×1 year=$4,310

Working note (9):

Calculate the premium amortized.

Premium amortized=Cash interest payment Interest Expense =$5,000(7)$4,310(8)=$690 

4.

To determine

Prepare journal entry to record the interest and face value payment on December 31, 2020.

4.

Expert Solution
Check Mark

Explanation of Solution

Prepare journal entry to record the payment of interest and face value on December 2020.

DateAccount Title and ExplanationPost RefDebit ($)Credit ($)
December 31, 2020Interest Expense (11) 4,282
 Bonds Payable 100,000 
Premium on Bonds Payable (12) 718
    Cash 105,000
(To record the payment of interest and face value)   

Table (5)

  • Interest expense is a component of stockholder’s equity and it decreases the equity value. So, debit it by $4,282.
  • Bonds payable is a liability and it decreases the value of liabilities. So, debit it by $100,000.
  • Premium on Bonds Payable is an adjunct liability account and it decreases the value of liabilities. So, debit it by $718.
  • Cash is an asset and it decreases the value of assets. So, credit it by $105,000.

Working note (10):

Calculate the cash interest payment.

Cash Interest Payment=(Face value×Stated interest rate×Interest time period)=$100,000×5100×1 year=$5,000

Working note (11):

Calculate interest expense.

Interest expense=Carrying amount ×Market interest×Time=($102,070$662$690)×4.25100×1 year=$4,282

Working note (12):

Calculate premium amortized.

Premium amortized=Cash interest payment Interest Expense =$5,000(10)$4,282(11)=$718 

5.

To determine

Prepare journal entry to record the bond retirement on January 1, 2020.

5.

Expert Solution
Check Mark

Explanation of Solution

Retirement of Bonds: The process of repaying the sale amount of bonds to bondholders at the time of maturity or before the maturity period is called as retirement of bonds. It is otherwise called as redemption of bonds.

Prepare Journal entry to record the bond retirement on January 1, 2020.

DateAccount Title and ExplanationPost RefDebit ($)Credit ($)
January 1, 2020Bonds Payable 100,000
Premium on Bonds Payable (14)718
Loss on Retirement of Bonds282
    Cash 101,000
(To record the retirement of the bonds) 

Table (6)

  • Bonds payable is a liability and it decreases the value of liabilities. So, debit it by $100,000.
  • Premium on Bonds Payable is an adjunct liability account and it decreases the value of liabilities. So, debit it by $718.
  • Loss on retirement of bonds is a component of stockholder’s equity and it decreases the equity value. So, debit it by $282.
  • Cash is an asset and it decreases the value of assets. So, credit it by $101,000

Working note (13):

Calculate the carrying amount of bonds payable on the retirement.

  Carrying amount of bonds payable = (Face value +Unamortized premium )   =$100,000+$718 =$100,718

Working note (14):

Compute the loss on the redemption of the bonds payable.

Loss on redemption of bonds payable}=(Cash paid to retire the bonds)(Carrying amount of bonds payable)=($100,000×101100)$100,718(13)=$101,000$100,718=$282

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Questin 5
Belle Garments manufactures customized T-shirts for football teams. The business uses a perpetual inventory system and has a highly labour-intensive production process, so it assigns manufacturing overhead based on direct labour cost. The business operates at a profit margin of 33% on sales. Belle Garments expects to incur $2,205,000 of manufacturing overhead costs and estimated direct labour costs of $3,150,000 during 2025. At the end of December 2024, Belle Line Garments reported work in process inventory of $93,980 - Job FBT 101 - $51,000 & Job FBT 102 - $42,980 The following events occurred during January 2025. i) Purchased materials on account, $388,000. The purchase attracted freight charges of $4,000 ii) Incurred manufacturing wages of $400,000 iii) Requisitioned direct materials and used direct labour in manufacturing. Job # FBT 101 FBT 102 FBT 103 FBT 104 Direct Materials $70,220 97,500 105,300 117,000 iv) Issued indirect materials to production, $30,000. Direct Labour $61,200…
The trial balance for K and J Nursery, Incorporated, listed the following account balances at December 31, 2024, the end of its fiscal year: cash, $27,000; accounts receivable, $22,000; inventory, $36,000; equipment (net), $91,000; accounts payable, $25,000; salaries payable, $10,500; interest payable, $6,500; notes payable (due in 18 months), $41,000; common stock, $72,000. Determine the year-end balance in retained earnings for K and J Nursery, Incorporated.

Chapter 10 Solutions

FUND. OF FINANCIAL ACCT. (LL) W/CONNECT

Ch. 10 - Will the stated interest rate be higher than the...Ch. 10 - What is the carrying value of a bond payable?Ch. 10 - What is the difference between a secured bond and...Ch. 10 - Prob. 14QCh. 10 - Prob. 15QCh. 10 - Prob. 16QCh. 10 - Prob. 17QCh. 10 - (Supplement D) Over the period to maturity, why...Ch. 10 - Which of the following best describes Accrued...Ch. 10 - Prob. 2MCCh. 10 - Prob. 3MCCh. 10 - Prob. 4MCCh. 10 - Which of the following does not impact the...Ch. 10 - Which of the following is false when a bond is...Ch. 10 - To determine if a bond will be issued at a...Ch. 10 - A bond is issued at a price of 103 and retired...Ch. 10 - In a recent year. Land O Lakes, Inc., reported (in...Ch. 10 - Prob. 10MCCh. 10 - Recording Unearned Revenues A local theater...Ch. 10 - Prob. 2MECh. 10 - Prob. 3MECh. 10 - Reporting Payroll Tax Liabilities Refer to M10-3....Ch. 10 - Reporting Current and Noncurrent Portions of...Ch. 10 - Recording a Note Payable Greener Pastures...Ch. 10 - Reporting Interest and Long-Term Debt, Including...Ch. 10 - On February 6, 2017, the NYSE bond directory...Ch. 10 - E-Tech Initiatives Limited plans to issue...Ch. 10 - Repeat M10-9 assuming the bonds are issued at...Ch. 10 - Recording Bonds Issued at Face Value Schlitterbahn...Ch. 10 - Prob. 12MECh. 10 - Computing the Debt-to-Assets Ratio and the Times...Ch. 10 - Analyzing the Impact of Transactions on the...Ch. 10 - Prob. 15MECh. 10 - Prob. 16MECh. 10 - Prob. 17MECh. 10 - Prob. 18MECh. 10 - Prob. 19MECh. 10 - Prob. 20MECh. 10 - Prob. 21MECh. 10 - Determining Financial Statement Effects of...Ch. 10 - Recording a Note Payable through Its Time to...Ch. 10 - Recording Payroll Costs McLoyd Company completed...Ch. 10 - Recording Payroll Costs with and without...Ch. 10 - Prob. 5ECh. 10 - Prob. 6ECh. 10 - Preparing Journal Entries to Record Issuance of...Ch. 10 - Preparing Journal Entries to Record Issuance of...Ch. 10 - Prob. 9ECh. 10 - Calculating and Interpreting the Debt-to-Assets...Ch. 10 - Prob. 11ECh. 10 - Prob. 12ECh. 10 - Prob. 13ECh. 10 - Prob. 14ECh. 10 - (Supplement 10B) Recording the Effects of a...Ch. 10 - Prob. 16ECh. 10 - Prob. 17ECh. 10 - Determining Financial Effects of Transactions...Ch. 10 - Recording and Reporting Current Liabilities with...Ch. 10 - Recording and Reporting Current Liabilities...Ch. 10 - Comparing Bonds Issued at Par, Discount, and...Ch. 10 - Determining Financial Statement Reporting of...Ch. 10 - Prob. 6CPCh. 10 - Prob. 7CPCh. 10 - Prob. 8CPCh. 10 - Prob. 9CPCh. 10 - Prob. 10CPCh. 10 - Determining Financial Effects of Transactions...Ch. 10 - Recording and Reporting Current Liabilities with...Ch. 10 - Recording and Reporting Current Liabilities...Ch. 10 - Comparing Bonds Issued at Par, Discount, and...Ch. 10 - Prob. 5PACh. 10 - Prob. 6PACh. 10 - Prob. 7PACh. 10 - Prob. 8PACh. 10 - Prob. 9PACh. 10 - Prob. 1PBCh. 10 - Recording and Reporting Current Liabilities with...Ch. 10 - Prob. 3PBCh. 10 - Prob. 4PBCh. 10 - Recording and Explaining the Early Retirement of...Ch. 10 - Prob. 6PBCh. 10 - Prob. 7PBCh. 10 - Prob. 8PBCh. 10 - Zarina Corp. signed a new installment note on...Ch. 10 - Prob. 1COPCh. 10 - Prob. 1SDCCh. 10 - Prob. 2SDCCh. 10 - Prob. 4SDCCh. 10 - Prob. 5SDCCh. 10 - Prob. 6SDCCh. 10 - Prob. 7SDCCh. 10 - Prob. 8SDCCh. 10 - (Supplement 10C) Preparing a Bond Amortization...Ch. 10 - Nicole thinks that her business, Nicole’s Getaway...
Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
How To Analyze an Income Statement; Author: Daniel Pronk;https://www.youtube.com/watch?v=uVHGgSXtQmE;License: Standard Youtube License