Kerala Company borrowed $10,000 on a two-year, zero coupon note. The note was issued on December 31, 2018. The face amount of the note, $12,544, is to be paid at maturity on December 31, 2020. This company uses the straight line method of amortization.
Required:
1. Allocate the interest of $2,544 to the two one-year interest periods, using straight-line interest amortization.
$
2. Prepare the entries to recognize the borrowing, the first year's interest expense, and the second year's interest expense plus redemption of the note at maturity. For compound entries, for those boxes in which no entry is required, leave the box blank.
2018, Dec. 31 Cash Discount on Notes Payable Notes Payable (Record issuance of note at discount) 2019, Dec. 31 Interest Expense Discount on Notes Payable (Record interest expense) 2020, Dec. 31 Interest Expense Notes Payable Discount on Notes Payable Cash (Record interest expense and repayment of note principal)
Kerala Company borrowed $10,000 on a two-year, zero coupon note. The note was issued on December 31, 2018. The face amount of the note, $12,544, is to be paid at maturity on December 31, 2020. This company uses the straight line method of amortization.
Required:
1. Allocate the interest of $2,544 to the two one-year interest periods, using straight-line interest amortization.
$
2. Prepare the entries to recognize the borrowing, the first year's interest expense, and the second year's interest expense plus redemption of the note at maturity. For compound entries, for those boxes in which no entry is required, leave the box blank.
| 2018, Dec. 31 | Cash | ||
| Discount on Notes Payable | |||
| Notes Payable | |||
| (Record issuance of note at discount) | |||
| 2019, Dec. 31 | Interest Expense | ||
| Discount on Notes Payable | |||
| (Record interest expense) | |||
| 2020, Dec. 31 | Interest Expense | ||
| Notes Payable | |||
| Discount on Notes Payable | |||
| Cash | |||
| (Record interest expense and repayment of note principal) |
Related questions
Entries for Bonds Payable and Installment Note Transactions
The following transactions were completed by Hobson Inc., whosefiscal year is the calendar year:
| 2016 | |
| July 1. | Issued $4,370,000 of five-year, 8% callable bonds dated July 1,2016, at a market (effective) rate of 9%, receiving cash of$4,197,109. Interest is payable semiannually on December 31 andJune 30. |
| Oct. 1. | Borrowed $170,000 as a 10-year, 8% installment note from MarbleBank. The note requires annual payments of $25,335, with the firstpayment occurring on September 30, 2017. |
| Dec. 31. | Accrued $3,400 of interest on the installment note. Theinterest is payable on the date of the next installment notepayment. |
| Dec. 31. | Paid the semiannual interest on the bonds. The bond discountamortization of $17,289 is combined with the semiannual interestpayment. |
| Dec. 31. | Closed the interest expense account. |
| 2017 | |
| June 30. | Paid the semiannual interest on the bonds. The bond discountamortization of $17,289 is combined with the semiannual interestpayment. |
| Sept. 30. | Paid the annual payment on the note, which consisted ofinterest of $13,600 and principal of $11,735. |
| Dec. 31. | Accrued $3,165 of interest on the installment note. Theinterest is payable on the date of the next installment notepayment. |
| Dec. 31. | Paid the semiannual interest on the bonds. The bond discountamortization of $17,289 is combined with the semiannual interestpayment. |
| Dec. 31. | Closed the interest expense account. |
| 2018 | |
| June 30. | Recorded the redemption of the bonds, which were called at 98.The balance in the bond discount account is $103,735 after paymentof interest and amortization of discount have been recorded.(Record the redemption only.) |
| Sept. 30. | Paid the second annual payment on the note, which consisted ofinterest of $12,661 and principal of $12,674. |
Required:
1. Journalize the entries to record theforegoing transactions. For compound transactions, if an amount boxdoes not require an entry, leave it blank or enter "0". Whenrequired, round your answers to the nearest dollar.
| Date | Account | Debit | Credit |
|---|---|---|---|
| 2016 | |||
| July 1 | Cash | ||
| Discount on bonds payable | |||
| Bonds payable | |||
| Oct. 1 | Cash | ||
| Notespayable | |||
| Dec. 31-Note | Interest expense | ||
| Notespayable | |||
| Dec. 31-Bond | Cash | ||
| Interest expense | |||
| Gain on bonds payable | |||
| Dec. 31-Closing | Bonds payable | ||
| Discount onbonds payable | |||
| 2017 | |||
| June 30 | Cash | ||
| Discount on bonds payable | |||
| Interest expense | |||
| Sept. 30 | Interest expense | ||
| Notes payable | |||
| Cash | |||
| Dec. 31-Note | |||
| Dec. 31-Bond | Notes payable | ||
| Interest expense | |||
| Cash | |||
| Dec. 31-Closing | Discount on bonds payable | ||
| Bondspayable | |||
| 2018 | |||
| June 30 | Bonds payable | ||
| Cash | |||
| Gain on redemption of bonds | |||
| Sept. 30 | |||
| Notes payable | |||
2. Indicate the amount of the interest expensein (a) 2016 and (b) 2017.
a. 2016 $
b. 2017 $
3. Determine the carrying amount of the bondsas of December 31, 2017.
$
Bonds Payable Journal Entries; Effective Interest Amortization
On December 31, 2009, Blair Company issued $800,000 of 20-year, 11% bonds payable for $754,784, yielding an effective interest rate of 12%. Interest is payable semiannually on June 30 and December 31. Prepare journal entries to reflect (a) the issuance of the bonds, (b) the semiannual interest payment and discount amortization (effective interest method) on June 30, 2010, and (c) the semiannual interest payment and discount amortization on December 31, 2010. Round amounts to the nearest dollar.
| General Journal | |||
|---|---|---|---|
| Date | Description | Debit | Credit |
| a.) | |||
| Dec.31 | Cash | $Answer | $Answer |
| Answer: Cash, Discount on Bonds Payable, Bonds Payable, Bond Interest Expense | Answer | Answer | |
| Answer: Cash, Discount on Bonds Payable, Bonds Payable, Bond Interest Expense | Answer | Answer | |
| To record issuance of bonds. | |||
| b. | |||
| Jun.30 | Answer: Cash, Discount on Bonds Payable, Bonds Payable, Bond Interest Expense. | Answer | Answer |
| Answer: Cash, Discount on Bonds Payable, Bonds Payable, Bond Interest Expense. | Answer | Answer | |
| Cash | Answer | Answer | |
| To record semiannual interest payment and | |||
| c.) | |||
| Dec.31 | Answer: Cash, Discount on Bonds Payable, Bonds Payable, Bond Interest Expense | Answer | Answer |
| Answer: Cash, Discount on Bonds Payable, Bonds Payable, Bond Interest Expense | Answer | Answer | |
| Cash | Answer | Answer | |
| To record semiannual interest payment. | | ||
Dean Plumbing issues $1,000,000 face value, non-interest-bearing bonds on December 31, 2018. The bonds are issued at 65 and mature on December 31, 2022.
Required:
Assuming the straight-line amortization method is followed, prepare the journal entry on December 31, 2021.
| 2021, Dec. 31 | Interest Expense | ||
| Discount on Bonds Payable | |||
| (Record interest expense) |
