On July 1, 2014, Sugarland Company issued $2,000,000 face valueof 10%, 10-year bonds at $1,770,602, a yield of 12%. Sugarland usesthe effectiveinterest method to amortize bond premium or discount.The bonds pay semiannual interest on June 30 and December 31.
Instructions
(a) Prepare the journal entries to record the followingtransactions. (1) The issuance of the bonds on July 1, 2014. (2)The payment of interest and the amortization of the premium onDecember 31, 2014. (3) The payment of interest and the amortizationof the premium on June 30, 2015. (4) The payment of interest andthe amortization of the premium on December 31, 2015. (b) Show theproper balance sheet presentation for the liability for bondspayable on the December 31, 2015, balance sheet. (c) Provide theanswers to the following questions. (1) What amount of interestexpense is reported for 2015? (2) Will the bond interest expensereported in 2015 be the same as, greater than, or less than theamount that would be reported if the straight-line method ofamortization were used? (3) Determine the total cost of borrowingover the life of the bond. (4) Will the total bond interest expensefor the life of the bond be greater than, the same as, or less thanthe total interest expense if the straight-line method ofamortization were used?
On July 1, 2014, Sugarland Company issued $2,000,000 face valueof 10%, 10-year bonds at $1,770,602, a yield of 12%. Sugarland usesthe effectiveinterest method to amortize bond premium or discount.The bonds pay semiannual interest on June 30 and December 31.
Instructions
(a) Prepare the journal entries to record the followingtransactions. (1) The issuance of the bonds on July 1, 2014. (2)The payment of interest and the amortization of the premium onDecember 31, 2014. (3) The payment of interest and the amortizationof the premium on June 30, 2015. (4) The payment of interest andthe amortization of the premium on December 31, 2015. (b) Show theproper balance sheet presentation for the liability for bondspayable on the December 31, 2015, balance sheet. (c) Provide theanswers to the following questions. (1) What amount of interestexpense is reported for 2015? (2) Will the bond interest expensereported in 2015 be the same as, greater than, or less than theamount that would be reported if the straight-line method ofamortization were used? (3) Determine the total cost of borrowingover the life of the bond. (4) Will the total bond interest expensefor the life of the bond be greater than, the same as, or less thanthe total interest expense if the straight-line method ofamortization were used?
Related questions
ABCCorporation issued 14%, 5-year bonds with a par value of $5,000,000on January 1, 2015. Interest is to be paid semiannually on eachJune 30 and December 31. The bonds were issued at $5,368,035 cashwhen the market rate for this bond was 12%.
(a) Prepare the general journal entry to record the issuance of thebonds on January 1, 2015.
1/1/15 | |||
(b) Show how the bonds would bereported on ABC's balance sheet at January 1, 2015.
Long-Term liabilities: | ||
(c) Assume that ABC uses the effectiveinterest method for amortizing any discount or premium on bonds.Prepare the general journal entry to record the first semiannualinterest payment on June 30, 2015. SHOW YOUR CALCULATIONS!
6/30/15 | |||
(d) Assume instead that ABC uses the straight-line method foramortizing any discount or premium on bonds. Prepare the generaljournal entry to record the first semiannual interest payment onJune 30, 2015. SHOW YOUR CALCULATIONS!
6/30/15 | |||
(e) Assume that ABC uses the effective interest method foramortizing any discount or premium on bonds. Prepare the generaljournal entry to record the second semiannual interest payment onDecember 31, 2015. SHOW YOUR CALCULATIONS!
12/31/15 | |||
