Intermediate Accounting
9th Edition
ISBN: 9781259722660
Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher: McGraw-Hill Education
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Chapter 14, Problem 14.8BE
Investment in bonds
• LO14–2
On January 1, a company purchased 3%, 20-year corporate bonds for $69,033,776 as an investment. The bonds have a face amount of $80 million and are priced to yield 4%. Interest is paid semiannually. Prepare the
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Question 9
Vadercat Limited issued $15 million 4.0 percent, 8 year bonds on
September 1, 2023. The market rate of interest on the date of the
issue was 4.5 percent. Interest is payable semi-annually on March 1
and September 1. The company's year-end is December 31.
Required:
a. Prepare all journal entries required to record the bonds in the
company's financial records for the first full year the bonds are
outstanding. The company uses the straight-line method of
amortizations.
b. Indicate how the bond obligation would be shown on the
company's year-end statement of financial position.
c. How much interest expense, related to this security, is shown
on the 2023 year end income statement?
d. How much interest expense, related to this security, will be
shown on the 2024 year end income statement?
Accounting Problem 2.5
eBook
20Y2
Entries for Issuing and Calling Bonds; Loss
Hoover Corp., a wholesaler of music equipment, issued $8,340,000 of 25-year, 8% callable bonds on March 1, 20Y2, at their face amount, with interest payable on March
1 and September 1. The fiscal year of the company is the calendar year.
Show Me How
Mar. 1 Issued the bonds for cash at their face amount.
Sept. 1 Paid the interest on the bonds.
20Y4
Sept. 1 Called the bond issue at 102, the rate provided in the bond indenture. (Omit entry for payment of interest.)
If an amount box does not require an entry, leave it blank.
Journalize the entries to record the above selected transactions.
Issued the bonds for cash at their face amount.
20Y2 Mar. 1
Paid the interest on the bonds.
20Y2 Sept. 1
eAssignmentSession Locator=&inprogress=false
Check My Work
Called the bond issue at 102, the rate provided in the bond indenture. (Omit entry for payment of interest.)
2014 Sept. 1
000
100
All work saved
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Chapter 14 Solutions
Intermediate Accounting
Ch. 14 - How is periodic interest determined for...Ch. 14 - As a general rule, how should long-term...Ch. 14 - How are bonds and notes the same? How do they...Ch. 14 - What information is contained in a bond indenture?...Ch. 14 - On January 1, 2018, Brandon Electronics issued 85...Ch. 14 - How is the price determined for a bond (or bond...Ch. 14 - A zero-coupon bond pays no interest. Explain.Ch. 14 - Prob. 14.8QCh. 14 - Compare the two commonly used methods of...Ch. 14 - Prob. 14.10Q
Ch. 14 - When a notes stated rate of interest is...Ch. 14 - How does an installment note differ from a note...Ch. 14 - Prob. 14.13QCh. 14 - Prob. 14.14QCh. 14 - Air Supply issued 6 million of 9%, 10-year...Ch. 14 - Both convertible bonds and bonds issued with...Ch. 14 - Prob. 14.17QCh. 14 - Cordova Tools has bonds outstanding during a year...Ch. 14 - If a company prepares its financial statements...Ch. 14 - (Based on Appendix 14A) Why will bonds always sell...Ch. 14 - Prob. 14.21QCh. 14 - Prob. 14.22QCh. 14 - Prob. 14.23QCh. 14 - Bank loan; accrued interest LO132 On October 1,...Ch. 14 - Non-interest-bearing note; accrued interest LO132...Ch. 14 - Determining the price of bonds LO142 A company...Ch. 14 - Determining the price of bonds LO142 A company...Ch. 14 - Effective interest on bonds LO142 On January 1, a...Ch. 14 - Effective interest on bonds LO142 On January 1, a...Ch. 14 - Straight-line interest on bonds LO142 On January...Ch. 14 - Investment in bonds LO142 On January 1, a company...Ch. 14 - Note issued for cash; borrower and lender LO143...Ch. 14 - Note with unrealistic interest rate LO143 On...Ch. 14 - Installment note LO143 On January 1, a company...Ch. 14 - Prob. 14.12BECh. 14 - Bonds with detachable warrants LO145 Hoffman...Ch. 14 - Convertible bonds LO145 Hoffman Corporation...Ch. 14 - Reporting bonds at fair value LO146 AI Tool and...Ch. 14 - Bond valuation LO142 Your investment department...Ch. 14 - Determine the price of bonds in various situations...Ch. 14 - Determine the price of bonds; issuance; effective...Ch. 14 - Investor; effective interest LO142 (Note: This is...Ch. 14 - Bonds; issuance; effective interest; financial...Ch. 14 - Bonds; issuance; effective interest LO142 The...Ch. 14 - Prob. 14.7ECh. 14 - Investor; straight-line method LO142 (Note: This...Ch. 14 - Issuance of bonds; effective interest;...Ch. 14 - Issuance of bonds; effective interest;...Ch. 14 - Bonds; effective interest; adjusting entry LO142...Ch. 14 - Prob. 14.12ECh. 14 - Issuance of bonds; effective interest LO142...Ch. 14 - Prob. 14.14ECh. 14 - Error correction; accrued interest on bonds LO142...Ch. 14 - Error in amortization schedule LO143 Wilkins Food...Ch. 14 - Prob. 14.17ECh. 14 - Note with unrealistic interest rate; lender;...Ch. 14 - Prob. 14.19ECh. 14 - Prob. 14.20ECh. 14 - Installment note LO143 LCD Industries purchased a...Ch. 14 - Prob. 14.22ECh. 14 - Early extinguishment LO145 The balance sheet of...Ch. 14 - Convertible bonds LO145 On January 1, 2018, Gless...Ch. 14 - Prob. 14.25ECh. 14 - Convertible bonds; induced conversion LO145 On...Ch. 14 - Prob. 14.27ECh. 14 - Bonds with detachable warrants LO145 On August 1,...Ch. 14 - Reporting bonds at fair value LO146 (Note: This...Ch. 14 - Reporting bonds at fair value LO146 On January 1,...Ch. 14 - Reporting bonds at fair value; calculate fair...Ch. 14 - Prob. 14.32ECh. 14 - Troubled debt restructuring; debt settled ...Ch. 14 - Prob. 14.34ECh. 14 - Troubled debt restructuring; modification of...Ch. 14 - Prob. 14.36ECh. 14 - Determining the price of bonds; discount and...Ch. 14 - Effective interest; financial statement effects ...Ch. 14 - Prob. 14.3PCh. 14 - Bond amortization schedule LO142 On January 1,...Ch. 14 - Issuer and investor; effective interest;...Ch. 14 - Prob. 14.6PCh. 14 - Prob. 14.7PCh. 14 - Bonds; effective interest; partial period...Ch. 14 - Zero-co upon bonds LO142 On January 1, 2018,...Ch. 14 - Prob. 14.10PCh. 14 - Prob. 14.11PCh. 14 - Prob. 14.12PCh. 14 - Note and installment note with unrealistic...Ch. 14 - Prob. 14.14PCh. 14 - Early extinguishment; effective interest LO145...Ch. 14 - Prob. 14.16PCh. 14 - Prob. 14.17PCh. 14 - Early extinguishment LO145 The long-term...Ch. 14 - Convertible bonds; induced conversion; bonds with...Ch. 14 - Convertible bonds; zero coupon; potentially...Ch. 14 - Prob. 14.21PCh. 14 - Determine bond price; record interest; report...Ch. 14 - Report bonds at fair value; quarterly reporting ...Ch. 14 - Prob. 14.24PCh. 14 - Prob. 14.25PCh. 14 - Troubled debt restructuring Appendix B At January...Ch. 14 - Prob. 14.1BYPCh. 14 - Real World Case 142 Zero-coupon debt; HP Inc. ...Ch. 14 - Prob. 14.4BYPCh. 14 - Prob. 14.5BYPCh. 14 - Prob. 14.6BYPCh. 14 - Prob. 14.8BYPCh. 14 - Prob. 14.9BYPCh. 14 - Research Case 1410 FASB codification research;...Ch. 14 - Prob. 14.11BYP
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- MASTERY PROBLEM Jackson, Inc.s fiscal year ends December 31. Selected transactions for the period 20-1 through 20-8 involving bonds payable issued by Jackson are as follows: 20-1 Oct. 31 Issued 600,000 of 10-year, 7%, callable bonds dated October 31, 20-1, for 612,000. Interest is payable semiannually on October 31 and April 30. The bond indenture provides that Jackson is to pay to the trustee bank 20,000 by May 15 of each year (except the tenth year) as a sinking fund for the retirement of the bonds on call or at maturity. Dec. 31 Made the adjusting entry for interest payable and amortized two months premium on the bonds (straight-line method). 20-2 Jan. 2 Reversed the adjusting entry for interest payable and bond premium amortization. Apr. 30 Paid the semiannual interest on the bonds and amortized six months premium. May 15 Paid the sinking fund trustee 20,000. Oct. 31 Paid the semiannual interest on the bonds and amortized six months premium. Dec. 31 Made the adjusting entry for interest payable and amortized two months premium on the bonds. 31 Sinking fund earnings for the year were 900. 20-8 May 15 Paid the sinking fund trustee 20,000. Oct. 31 Paid the semiannual interest on the bonds and amortized six months premium. 31 Redeemed the bonds, which were called at 97. The balance in the bond premium account is 3,600 after the payment of interest and amortization of premium have been entered. The cash balance in the sinking fund is 200,000, which is applied to the redemption. Jackson paid the sinking fund trustee the additional cash needed to pay off the bonds. (Hint: First make the entry for payment to the sinking fund, then make the entry for redemption of the bonds.) REQUIRED 1. Enter the preceding transactions in general journal form. 2. Calculate the carrying value of the bonds as of December 31, 20-2.arrow_forwardOn October 1 a company sells a 3-year, $2,500,000 bond with an 8% stated interest rate. Interest is paid quarterly and the bond is sold at 89.35. On October 1 the company would collect ________. A. $200,000 B. $558,438 C. $2,233,750 D. $6,701,250arrow_forwardWilbury Corporation issued 1 million of 13.5% bonds for 985,071.68. The bonds are dated and issued October 1, 2019, are due September 30, 2020, and pay interest semiannually on March 31 and September 30. Assume an effective yield rate of 14%. Required: 1. Prepare a bond interest expense and discount amortization schedule using the straight-line method. 2. Prepare a bond interest expense and discount amortization schedule using the effective interest method. 3. Prepare adjusting entries for the end of the fiscal year December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. If income before interest and income taxes of 30% in 2020 is 500,000, compute net income under each alternative. 5. Assume the company retired the bonds on June 30, 2020, at 98 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight line method of amortization b. effective interest method of amortization 6. Compute the companys times interest earned (pretax operating income divided by interest expense) for 2020 under each alternative.arrow_forward
- Cornerstone Exercise (Appendix 9A) Bond Issue Price On January 1, 2021, Callahan Auto issued $900,000 of 9%, 10-year bonds. Interest is payable semiannually on June 30 and December 31. Required: What is the issue price if the bonds are sold to yield 8%? (Note: Round to the nearest dollar.)arrow_forwardREDEMPTION OF BONDS ISSUED AT FACE VALUE Levesque Lumber Co. issued 800,000 in bonds at face value 10 years ago and has paid semiannual interest payments through the years. (a) Assume the bonds are redeemed at face value. (b) Assume that 80,000 of the bonds are redeemed at 104. (c) Assume that 80,000 of the bonds are redeemed at 96. Prepare journal entries to record (a), (b), and (c).arrow_forwardBond discount, entries for bonds payable transactions On July 1, Year 1, Livingston Corporation, a wholesaler of manufacturing equipment, issued 46,000,000 of 20-year, 10% bonds at a market (effective) interest rate of 11%, receiving cash of 42,309,236. Interest on the builds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year. Instructions 1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, Year 1. 2. Journalize the entries to record the following: A. The first semiannual interest payment on December 31, Year 1, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.) B. The interest payment on June 30, Year 2, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.) 3. Determine the total interest expense for Year 1. 4. Will the bond proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of interest? 5. (Appendix 1) Compute the price of 42,309,256 received for the bonds by using the present value tables in Appendix A at the end of the text. (Round to the nearest dollar.)arrow_forward
- Issuing bonds at face amount On January 1, the first day of the fiscal year, Designer Fabric Inc. issues a 5,000,000, 6%, 10-year bond that pays semiannual interest of 150,000 (5,000,000 6% year), receiving cash of 5,000,000. Journalize the entries to record (A) the issuance of the bonds. (B) the first interest payment on June 30, and (C) the payment of the principal on the maturity date.arrow_forwardBond discount, entries for bonds payable transactions On July 1, Year 1, Danzer Industries Inc. issued 40,000,000 of 10-year, 7% bonds at a market (effective) interest rate of 8%, receiving cash of 37,282,062. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year. Instructions 1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, Year 1. 2. Journalize the entries to record the following: A. The first semiannual interest payment on December 31, Year 1, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.) B. The interest payment on June 30, Year 2, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.) 3. Determine the total interest expense for Year 1. 4. Will the bond proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of interest? 5. (Appendix 1) Compute the price of 37,282,062 received for the bonds by using the present value tables in Appendix A at the end of the text. (Round to the nearest dollar.)arrow_forwardWaldron Inc. issued $400,000 bonds with a stated rate of 7% when the market rate was 5%. They are 3-year bonds with interest to be paid annually. Prepare a table to amortize the premium of the bonds. Assume that the bonds were issued for $421,844.arrow_forward
- Bond discount, entries for bonds payable transactions, interest method of amortizing bond discount On July 1, Year 1, Livingston Corporation, a wholesaler of manufacturing equipment, issued 46,000,000 of 20-year, 10% bonds at a market (effective) interest rate of 11%, receiving cash of 42,309,236. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year. Instructions 1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds. 2. Journalize the entries to record the following: A. The first semiannual interest payment on December 31, Year 1, and the amortization of the bond discount, using the interest method. (Round to the nearest dollar.) B. The interest payment on June 30, Year 2, and the amortization of the bond discount, using the interest method. (Round to the nearest dollar.) 3. Determine the total interest expense for Year 1.arrow_forwardx Premium Amortization On the first day of the fiscal year, a company issues a $8,500,000, 9%, 10-year bond that pays semiannual interest of $382,500 ($8,500,000 × 9% × ½), receiving cash of $9,077,589. Journalize the first interest payment and the amortization of the related bond premium. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. Interest Expense fill in the blank fill in the blank Premium on Bonds Payable fill in the blank fill in the blank Casharrow_forwardKnowledge Check 01 On January 1, Duffy Enterprises issued $100,000 in bonds that mature in 10 years. The bonds were issued at face value. The bonds have a stated interest rate of 8% and pay interest once per year on December 31. Prepare the appropriate journal entry to record the issuance of the bonds. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) - View transaction list View journal entry worksheet No 1 Transaction A Gain on Bond Retirement Interest Expense General Journal Debit 104,000 Credit 8,000 Ⓒarrow_forward
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