Problem 1
The New York News Company, on January 1, 2015, issued $4,000,00010-year bonds with a stated (coupon) rate of interest of 8.0%.Interest is payable semi-annually on July 1 and January 1. Thebonds are due January 1,2025. At the time the bonds are sold themarket (effective) rate of interest is 6.0%.
Part A:
Compute the selling price of the bonds and prepare the journalentry recorded by the New York News for January 1, 2015 â the datethe bonds were sold. Please show your work for calculation of thebond price.
Part B:
Assuming the New York News used the straight line method ofamortization for discounts and premiums. Prepare the journal entryto record the payment of interest on July 1, 2015
Part C:
Assuming New York News uses the effective interest method ofamortizing disconnects and premiums and using the same market rateof interest of 6.0 % annually (3.0% for 6 months), please preparethe entry to record the payment of interest on July 1, 2015.
Problem 1
The New York News Company, on January 1, 2015, issued $4,000,00010-year bonds with a stated (coupon) rate of interest of 8.0%.Interest is payable semi-annually on July 1 and January 1. Thebonds are due January 1,2025. At the time the bonds are sold themarket (effective) rate of interest is 6.0%.
Part A:
Compute the selling price of the bonds and prepare the journalentry recorded by the New York News for January 1, 2015 â the datethe bonds were sold. Please show your work for calculation of thebond price.
Part B:
Assuming the New York News used the straight line method ofamortization for discounts and premiums. Prepare the journal entryto record the payment of interest on July 1, 2015
Part C:
Assuming New York News uses the effective interest method ofamortizing disconnects and premiums and using the same market rateof interest of 6.0 % annually (3.0% for 6 months), please preparethe entry to record the payment of interest on July 1, 2015.
Related questions
Korean Corporation issued $2 million, 10-year, 6% bonds on January 1, 2015. Interest is payable semi-annually on July and January 1st
Prepare the entry to record the sale of these bonds, assuming they were issued at the below prices.
Record the first semi-annual interest payment on July 1.
a. Issued at 98.
| Date | Account Titles | Ref. | Debit | Credit |
Issued at 103
| Date | Account Titles | Ref. | Debit | Credit |
| BONDS |
| On January 1, 2016, Lagune& Sons issued 9% bonds dated January 1, 2016, with a faceamount of $200,000. The bonds sold for $182,841 and mature in 20years. The effective interest rate for these bonds was 10%.Interest is paid semiannually on July 1 and December 31. Lagune'sfiscal year is the calendar year. |
REQUIRED:
| 1. Prepare the journal entryto record the bond issuance on January 1, 2016. |
| 2. Prepare the entry to record interest onJuly 1, 2016, using the effective interest method. |
| 3. Prepare the necessary journal entry onDecember 31, 2016. |
| 4. Prepare the entry to record interest onJuly 1, 2016, using the straight-line method. |
| 5. Prepare the necessary journal entry onDecember 31, 2016 using the straight-line methods. |
| There are three problems thisweek. Click the tabs at the bottom of the spreadsheet to accesseach one. | |||||||
| On 1/1/2015, Snickers Company issued 10-year bondswith a face value of $700,000 at 101. The bonds carry a statedinterest rate of 8%, with | |||||||
| interest payable semi-annually on January 1 andJuly 1. Snickers uses the straight-line method of amortizing bondpremium or discount. | |||||||
| (a) Prepare the journal entry to record theissuance of the bonds. | |||||||
| (b) Prepare the journal entry to record payment ofinterest on July 1, 2015. | |||||||
| (c) Prepare the adjusting entry to record theaccrual of interest on December 31, 2015. | |||||||
| (d) Prepare the balance sheet presentation for thebond on 12/31/2015. | |||||||
| (e) Prepare the balance sheet presentation for thebond on 12/31/2016. | |||||||
| Solutions: | |||||||
| Date | Account | Debit | Credit | ||||
| 1/1/2015 | Cash | 707,000 | |||||
| Bonds Payable | 700,000 | ||||||
| Premium on Bonds Payable | 7,000 | ||||||
| 7/1/2015 | Interest Expense | 28,000 | Note that it would also be correct to combine thetwo entries into one. | ||||
| Cash | 28,000 | ||||||
| Premium on Bonds Payable | 350 | ||||||
| Interest Expense | 350 | ||||||
| 12/31/2015 | Interest Expense | 28,000 | Note that it would also be correct to combine thetwo entries into one. | ||||
| Interest Payable | 28,000 | ||||||
| Premium on Bonds Payable | 350 | ||||||
| Interest Expense | 350 | ||||||
| Snickers Corporation | |||||||
| Balance Sheet (Partial) | |||||||
| 12/31/2015 | |||||||
| Long Term Liabilities | |||||||
| Bonds Payable | 700,000 | ||||||
| Add: Premium on Bonds Payable | 6,300 | ||||||
| 706,300 | |||||||
| Snickers Corporation | |||||||
| Balance Sheet (Partial) | |||||||
| 12/31/2016 | |||||||
| Long Term Liabilities | |||||||
| Bonds Payable | 700,000 | ||||||
| Add: Premium on Bonds Payable | 5,600 | ||||||
| 705,600 | |||||||
