Concept explainers
a.
Identify whether the market rate of interest was more or less than the stated interest rate, when the bonds were issued. Determine the amount received by the Company K, if the bond is sold at face value.
a.
Explanation of Solution
Straight-line amortization bond:
When the bonds were issued, the market rate of interest was more than the stated rate of interest. This is because; the bonds are sold at discount.
When the bonds had sold at face value, Company K would have received $200,000.
b.
Prepare the liabilities section of the
b.
Explanation of Solution
Prepare the liabilities section of the balance sheet at December 31, 2018 and 2019.
| Company K | ||
| Balance sheet (Partial) | ||
| For the Year Ended December 31, 2018 and 2019 | ||
| Particulars | 2018 | 2019 |
| Liabilities: | ||
| Interest Payable | 4,000 | 4,000 |
| Bonds Payable | 200,000 | 200,000 |
| Less: Discount on Bonds Payable | (5,375) | (4,625) |
| Carrying | 194,625 | 195,375 |
(Table 9)
Working Notes:
Calculate the amount of discount on bonds payable for 2018.
Calculate the amount of discount on bonds payable for 2019.
c.
Calculate the amount of interest expense that Company K would report on the income statements for the 2018 and 2019.
c.
Explanation of Solution
Calculate the amount of interest expense that Company K would report on the income statements for the 2018.
Hence, the amount of interest expense that Company K would report on the income statements for 2018 is $10,625.
Calculate the amount of interest expense that Company K would report on the income statements for the 2019.
Hence, the amount of interest expense that Company K would report on the income statements for 2019 is $12,750.
d.
Calculate the amount of interest expense that Company K would pay to the bondholders in 2018 and 2019.
d.
Explanation of Solution
Calculate the amount of interest expense that Company K would pay to the bondholders in 2018.
Hence, the amount of interest expense that Company K would pay to the bondholders in 2018 is $6,000.
Calculate the amount of interest expense that Company K would pay to the bondholders in 2019.
Hence, the amount of interest expense that Company K would pay to the bondholders in 2019 is $12,000.
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Chapter 7 Solutions
SURVEY OF ACCOUNTING(LL)>CUSTOM PKG.<
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