BE14-13
| Samson Corporation issued a 5year, $81,500, zero-interest-bearing note to Brown Company on January 1, 2014, and received cash of $48,366. The implicit interest rate is 11%. | ||
| Prepare Samson’s journal entries for (a) the January 1 issuance and (b) the December 31 recognition of interest. | ||
| (a) | Cash | 48366 |
| Discount on Notes Payable | 33,134 | |
| 81500 – 48366 | ||
| Notes Payable | 81500 | |
| (b) | Interest Expense | 5320 |
| 48366*11% | ||
| Discount On Notes Payable | 5320 |
E14-3
| 1. On January 1, 2014, Simon Company issued $264,000 of 8%, 10 year bonds at par. Interest is payable quarterly on April 1, July 1, October 1, and January 1. | |
| 2. On June 1, 2014, Garfunkel Company issued $135,600 of 12%, 10 year bonds dated January 1 at par plus accrued interest. Interest is payable semiannually on July 1 and January 1. | |
| For each of these two independent situations, prepare journal entries to record the following. | |
| Simon Company: | |
| 1/1/14 | (a) The issuance of the bonds. |
| Cash | 264,000 |
| Bonds Payable | 264,000 |
| 7/1/14 | (b) The payment of interest on July 1. |
| Interest Expense | 5280 |
| 264000*8%*3/12 | |
| Cash | 5,280 |
| 12/31/14 | (c) The accrual of interest on December 31. |
| Interest Expense | 5,280 |
| Interest Payable | 5,280 |
| Garfunkel Company: | |
| 6/1/14 | (a) The issuance of the bonds. |
| Cash | 142,380 |
| 135600 + 6780 | |
| Bonds Payable | 135,600 |
| Interest Expense | 6,780 |
| 135600*12%*5/12 | |
| (b) The payment of interest on July 1. | |
| Interest Expense | 8136 |
| 135600*12%*6/12 | |
| Cash | 8,136 |
| (c) The accrual of interest on December 31. | |
| Interest Expense | 8,136 |
| Interest Payable | 8,136 |
E14-4
| Celine Dion Company issued $852,000 of 8%, 20 year bonds on January 1, 2014, at 101. Interest is payable semiannually on July 1 and January 1. Dion Company uses the straight-line method of amortization for bond premium or discount. | ||
| Prepare the journal entries to record the following. | ||
| (a) The issuance of the bonds. | ||
| 1/1/14 | Cash | 860520 |
| 852000*101% | ||
| Bonds Payable | 852000 | |
| Premium on Bonds Payable | 8520 | |
| 860520-852000 | ||
| (b) The payment of interest and the related amortization on July 1, 2014. | ||
| 7/1/14 | Interest Expense | 33867 |
| 34080-213 | ||
| Premium on Bonds Payable | 213 | |
| 8520/40 | ||
| Cash | 34080 | |
| 852000*8%*6/12 | ||
| (c) The accrual of interest and the related amortization on December 31, 2014. | ||
| 12/31/14 | Interest Expense | 33,867 |
| Premium on Bonds Payable | 213 | |
| Interest Payable | 34,080 |
E14-5
| Celine Dion Company issued $780,000 of 10%, 20 year bonds on January 1, 2014, at 102. Interest is payable semiannually on July 1 and January 1. Celine Dion Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%. | ||
| Prepare the journal entries to record the following. | ||
| (a) The issuance of the bonds. | ||
| 1/1/14 | Cash | 795,600 |
| 780000*102% | ||
| Bonds Payable | 780,000 | |
| Premium on Bonds Payable | 1,560 | |
| 795600-780000 | ||
| (b) The payment of interest and related amortization on July 1, 2014. | ||
| 7/1/14 | Interest Expense | 38,867 |
| 795600*9.7705%*1/2 | ||
| Premium on Bonds Payable | 133 | |
| Cash | 39,000 | |
| 780000*10%*6/12 | ||
| (c) The accrual of interest and the related amortization on December 31, 2014. | ||
| 12/31/14 | Interest Expense | |
| 795467*9.7705%*1/2 | 38,861 | |
| Premium on Bonds Payable | 139 | |
| Interest Payable | 39,000 | |
| 795000 | ||
| 39000-38867 = 133 | 133 | |
| 795467 |
E14-8
| (a) CeCe Winans Corporation incurred the following costs in connection with the issuance of bonds: (1) printing and engraving costs, $13,940; (2) legal fees, $53,720, and (3) commissions paid to underwriter, $79,960. | |
| What amount should be reported as Unamortized Bond Issue Costs, and where should this amount be reported on the balance sheet? | |
| Amount to be reported as Unamortization Issue Costs | 147,620 |
| 13940+53720+79960 | |
| (C) Ron Kenoly Inc. issued $605,800 of 8%, 10 year bonds on June 30, 2014, for $530,304. This price provided a yield of 10% on the bonds. Interest is payable semiannually on December 31 and June 30. | |
| If Kenoly uses the effective interest method, determine the amount of interest expense to record if financial statements are issued on October 31, 2014. | |
| 530204*0.10*4/12 | = 17677 |
E14-9
| On June 30, 2014, Mischa Auer Company issued $4,126,000 face value of 13%, 19year bonds at $4,432,278, a yield of 12%. Auer uses the effective interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and December 31 | ||
| (a) Prepare the journal entries to record the following transactions. | ||
| (1) The issuance of the bonds. | ||
| 6/30/14 | Cash | 4,432,278 |
| Bonds Payable | 4,126,000 | |
| Premium on Bonds Payable | 306,274 | |
| 4432278-4126000 | ||
| (2) The payment of interest and related amortization on Dec 31, 2014. | ||
| 12/31/14 | Interest Expense | 265,937 |
| 4432278*12%*6/12 | ||
| Premium on Bonds Payable | 2,253 | |
| 268190-265802 | ||
| Cash | 268,190 | |
| (3) The payment of interest and related amortization on June 30, 2015. | ||
| 6/30/15 | Interest Expense | 265,802 |
| 4432278-2253*12%*6/12 | ||
| Premium on Bonds Payable | 2,388 | |
| 268190-265802 | ||
| Cash | 268,190 | |
| (4) The payment of interest and related amortization on Dec 31, 2015. | ||
| 12/31/15 | Interest Expense | 265,658 |
| 4432278 – 2253 – 2388 | ||
| Premium on Bonds Payable | 2532 | |
| Cash | 268190 | |
| (b) Show the proper balance sheet presentation for the liability for bonds payable on the December 31, 15, balance sheet. | ||
| Long-term Liabilities | ||
| Bonds Payable | 4126000 | |
| Premiun on Bonds Payable | 299,105 | |
| Book Value of Bonds Payable | 4,425,105 | |
| (c) Provide the answers to the following questions. | ||
| (1) What amount of interest expense is reported for 2015? | ||
| Interest expense | 265802 – 265658 = 531460 | |
| (2) Will the bond interest expense reported in 2015 be the same as, greater than, or less than the amount that would be reported if the straight line method of amortization were used? | ||
| Premium per year under SL method | ||
| Interest Expense for 2015 under SL | ||
| (3) Determine the total cost of borrowing over the life of the bond. | ||
| Interest Expense for 19 years | 4126000*13%*19 | 10191220 |
| add:Principle Due in2034 | 4126000 | |
| 14317220 | ||
| minus:Cash Received when issuing | 4432278 | |
| 9884942 | ||
| (4) Will the total bond interest expense for the life of the bond be greater than, the same as, or less than the total interest expense if the straight-line method of amortization were used? | ||
| the same |
E14-12
| On January 2, 2009, Banno Corporation issued $1,610,000 of 10% bonds at 98 due December 31, 2018. Legal and other costs of $26,600 were incurred in connection with the issue. Interest on the bonds is payable annually each December 31. The $26,600 issue costs are being deferred and amortized on a straight-line basis over the 10 year term of the bonds. | ||
| The discount on the bonds is also being amortized on a straight-line basis over the 10 years. | ||
| The bonds are callable at 102 (i.e., at 102% of face amount), and on January 2, 2014, Banno called $1,224,000 face amount of the bonds and redeemed them. | ||
| Prepare the journal entry to record the redemption. | ||
| Reacquisition price | 985,320 | |
| 966000*102% | ||
| Net C.A. of bonds redemeed: | 966,000 | |
| Face Value | (9,660) | |
| Unamoritzed Discount | (7,980) | 948360 |
| Unamoritzed Issue costs | ||
| Loss on Redemption | 36960 | |
| Bonds Payable | – 0 | 966000 |
| Loss on Redemption of Bonds | – 0 | 36960 |
| Unamortized Bond Issue Costs | 7980 | |
| Discouns on Bonds Payable | – 0 | 9660 |
| Cash | 985320 | |
| ***** | 26600*966000/161000=15960 | |
| 15960/10 = 1596 | ||
| 1596*5 = 7980 | ||
| 96600*2% = 19320 | ||
| 19320/10 = 1932 | ||
| 1932*5=9660 |
P14-1
| The following amortization and interest schedule reflects the issuance of 11 year bonds by Capulet Corporation on January 1, 2008, and the subsequent interest payments and charges. The company’s year end is December 31, and financial statements are prepared once yearly | |
| (a) Indicate whether the bonds were issued at a premium or a discount. | |
| (b) Indicate whether the amortization schedule is based on the straight-line method or the effective interest method. | |
| (c) Determine the stated interest rate and the effective interest rate. | |
| The stated rate % | |
| The effective rate % | |
| (d) On the basis of the schedule above, prepare the journal entry to record the issuance of the bonds on January 1, 2008. | |
| 1/1/08 | Cash |
| Discount on Bonds Payable | |
| Bonds Payable | |
| (e) On the basis of the schedule above, prepare the journal entry to reflect the bond transactions and accruals for 2008. | |
| 12/31/08 | Interest Expense |
| Discount on Bonds Payable | |
| Interest Payable | |
| (f) On the basis of the schedule above, prepare the journal entries to reflect the bond transactions and accruals for 2015. Capulet Corporation does not use reversing entries. | |
| 1/1/15 | Interest Payable |
| Cash | |
| 12/31/15 | Interest Expense |
| Discount on Bonds Payable | |
| Interest Payable |
IFRS14-3
| On January 1, 2014, JWS Corporation issued $600,000 of 7% bonds, due in 10 years. The bonds were issued for $559,224, and pay interest each July 1 and January 1. | ||
| Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. Assume an effective interest rate of 8%. | ||
| (a) | Cash | 559,224 |
| Bonds Payable | 559,224 | |
| (b) | Interest Expense | 22,369 |
| 559224*8%*6/12 | ||
| Cash | 21,000 | |
| 600000*7%*6/12 | ||
| Bonds Payable | 1,369 | |
| (c) | Interest Expense | 22,424 |
| 560593*8%*6/12 | ||
| Interest Payable | 21,000 | |
| 600000*7%*6/12 | ||
| Bonds Payable | 1,424 |
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