Record the journal entries in the books of Corporation J.

Question

Assume bonds payable are amortized using the straight-line amortization method unless stated otherwise. Using the effective-interest amortization method On December 31, 2018, when the market interest rate is 6%, Benson Realty issues $700,000 of 6.25%, 10-year bonds payable. The bonds pay interest semiannually. Benson Realty received $713,234 in cash at issuance. Requirements Prepare an amortization table using the effective interest amortization method for the first two semiannual interest periods. (Round to the nearest dollar.) Using the amortization table prepared in Requirement 1, journalize issuance of the bonds and the first two interest payments.

Answer 1

Question

Chapter 13, Problem 3P

1.

To determine

Record the journal entries in the books of Corporation J.

2.

To determine

Explain the errors that would occur in the company’s financial statements if Corporation J has failed to record the interest at acquisition.

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Assume bonds payable are amortized using the straight-line amortization method unless stated otherwise. Using the effective-interest amortization method On December 31, 2018, when the market interest rate is 6%, Benson Realty issues $700,000 of 6.25%, 10-year bonds payable. The bonds pay interest semiannually. Benson Realty received $713,234 in cash at issuance. Requirements Prepare an amortization table using the effective interest amortization method for the first two semiannual interest periods. (Round to the nearest dollar.) Using the amortization table prepared in Requirement 1, journalize issuance of the bonds and the first two interest payments.

On January 1, 2019, $40 million face amount of 5%, 20-year bonds were issued. The bonds pay interest on a semiannual basis on June 30 and December 31 each year. The market interest rates were slightly higher than 5% when the bonds were sold. Were these bonds issued at a premium or discount? Will the semiannual interest expense on these bonds be more than or less than the amount of interest paid on each payment date? Multiple Choice The bonds were issued at a discount, and the semiannual interest expense will be more than the amount of interest paid on each payment date. The bonds were issued at a discount, and the semiannual interest expense will be less than the amount of interest paid on each payment date. The bonds were issued at a premium, and the semiannual interest expense will be more than the amount of interest paid on each payment date. The bonds were issued at a premium, and the semiannual interest expense will be less than the amount of interest paid on each payment date.

Bonds Issued at a Discount (Effective Interest) Sicily Corporation issued $900,000 in 6% bonds (payable on December 31, 2029) on January 1, 2020, for $864,000. Interest is paid on June 30 and December 31. The market rate of interest is 7%. Required: Prepare the amortization table through December 31, 2021, using the effective interest rate method. If an amount box does not require an entry, leave it blank and if the answer is zero, enter "0". If required, round your answers to the nearest whole dollar. Sicily Corporation Amortization Table Period Cash Payment (Credit) Interest Expense (Debit) Discount on Bonds Payable (Credit) Discount on Bonds Payable Balance Carrying Value At issue $fill in the blank 1 $fill in the blank 2 $fill in the blank 3 $fill in the blank 4 $fill in the blank 5 6/30/20 fill in the blank 6 fill in the blank 7 fill in the blank 8 fill in the blank 9 fill in the blank 10 12/31/20 fill in the blank 11 fill in the blank 12 fill in the blank 13…