Explanation 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. Prepare the journal entries for the year 2016 and 2017: Date Account titles and Explanation Debit Credit January 1, 2016 Cash $75,000 Discount on notes payable (2) $27,336.15 Notes payable $75,000 Unearned revenue $27,336.15 (To record the exchange of note payable for cash and rights) December 31,2016 Interest Expense (3) $5,719.66 Discount on notes payable $5,719.66 (To record the amount of interest expense) December 31,2016 Unearned revenue (4) $5,467.23 Sales revenue $5,467.23 (To record the amount of unearned revenue) December 31, 2017 Interest expense (5) $6,406.02 Discount on notes payable $6,406.02 (To record the amount of interest expense) December 31, 2017 Unearned revenue (4) $5,467.23 Sales revenue $5,467.23 (To record the amount of unearned revenue) Table (1) To record the exchange of note payable for cash and rights: Cash is an asset and it is increased. Therefore, debit cash account by $75,000. Discount on notes payable is a contra liability and it is increased. Therefore, debit discount on notes payable account by $27,336.15. Notes payable is a liability and it is increased. Therefore, credit notes payable account by $75,000 Unearned revenue is a component of stockholders’ equity and it is increased. Therefore, credit unearned revenue account by $27,336.15. To record the amount of interest expense for the year 2016: Interest expense is a component of stockholders’ equity and it is decreased. Therefore, debit interest expense account by $5,719.66. Discount on notes payable is a contra liability and it is decreased. Therefore, credit discount on notes payable account by $5,719.66. To record the amount of unearned revenue for the year 2016: Unearned revenue is a liability and it is decreased. Therefore, debit unearned revenue account by $5,467.23. Sales revenue is a component of stockholders’ equity and it is increased. Therefore, credit sales revenue account by $5,467.23. To record the amount of interest expense for the year 2017: Interest expense is a component of stockholders’ equity and it is decreased. Therefore, debit interest expense account by $6,406.02. Discount on notes payable is a contra liability and it is decreased. Therefore, credit discount on notes payable account by $6,406.02. To record the amount of unearned revenue for the year 2017: Unearned revenue is a liability and it is decreased. Therefore, debit unearned revenue account by $5,467.23. Sales revenue is a component of stockholders’ equity and it is increased. Therefore, credit sales revenue account by $5,467.23. Note: Present value of $1 from Table 3 of Time Value of money Module, where n=4, i= 12%. Working notes: (1)Calculate the present value of notes payable: Present value of notes payable } = Future value × Present value of $1 =$75,000×0

Intermediate Accounting: Reporting and Analysis (Looseleaf)

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Intermediate Accounting: Reporting and Analysis (Looseleaf)

Ch. 14 - Prob. 1GI Ch. 14 - Why does issuing debt result in an income tax...Ch. 14 - What is a bond? Define face value, maturity date,...Ch. 14 - What is the difference between a mortgage bond and...Ch. 14 - Prob. 5GI Ch. 14 - Prob. 6GI Ch. 14 - Prob. 7GI Ch. 14 - Prob. 8GI Ch. 14 - Prob. 9GI Ch. 14 - Prob. 10GI

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Journalize entries for the year 2016 and 2017.

Solution Summary: The author explains that bonds are long-term promissory notes that are represented by a company while borrowing money from investors to raise fund for financing the operations.

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