ACCT-202 Lecture 5: Chapter 14 Practice Problem Workthrough

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Published on 5 Mar 2020
School
Georgetown University
Department
Accounting
Course
ACCT-202
1
Long-term Debt Sample Problems Solutions
1. On January 1, 2000, Bulldog Creations, Inc. issued $1,000,000 of 10-year, 9% bonds
with interest payable semi-annually on June 30 and December 31. At the time of
issuance, the market interest rate was 7%.
(a) Prepare Bulldog Creations’ journal entry on January 1, 2000 for the issuance
of these bonds.
Proceeds = PV of principal + PV of cash payments
Proceeds = $1,000,000 (PV of SCF, 3.5%, 20)
+ $45,000 (PV of OA, 3.5%, 20) = $1,142,124
Date
Account Title
Debit
Credit
1/1/00
Cash
1,142,124
Bonds Payable
1,000,000
Premium on Bonds
142,124
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(b) Prepare Bulldog Creations’ journal entry on June 30, 2000 and December 31,
2000 assuming the effective interest method of amortization is used.
Date
Cash
Payment
Interest
Expense
Amortization
of Premium
1/1/2000
6/30/2000
45,000.00
39,974.34
5,025.66
12/31/2000
45,000.00
39,798.44
5,201.56
6/30/2001
45,000.00
39,616.39
5,383.61
12/31/2001
45,000.00
39,427.96
5,572.04
6/30/2002
45,000.00
39,232.94
5,767.06
12/31/2002
45,000.00
39,031.09
5,968.91
6/30/2003
45,000.00
38,822.18
6,177.82
12/31/2003
45,000.00
38,605.96
6,394.04
6/30/2004
45,000.00
38,382.17
6,617.83
12/31/2004
45,000.00
38,150.54
6,849.46
6/30/2005
45,000.00
37,910.81
7,089.19
12/31/2005
45,000.00
37,662.69
7,337.31
6/30/2006
45,000.00
37,405.88
7,594.12
12/31/2006
45,000.00
37,140.09
7,859.91
6/30/2007
45,000.00
36,864.99
8,135.01
12/31/2007
45,000.00
36,580.27
8,419.73
6/30/2008
45,000.00
36,285.58
8,714.42
12/31/2008
45,000.00
35,980.57
9,019.43
6/30/2009
45,000.00
35,664.89
9,335.11
12/31/2009
45,000.00
35,338.16
9,661.84
Date
Account Title
Debit
Credit
6/30/00
Interest Expense
39,974.34
Premium on Bonds
5,025.66
Cash
45,000
12/31/00
Interest Expense
39,798.44
Premium on Bonds
5,201.56
Cash
45,000
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(c) Prepare Bulldog Creations’ journal entry on June 30, 2000 and December 31,
2000 assuming the straight-line method of amortization is used.
Premium Amortized Every 6 Months = 142,124 / 20 = $7,106.20
Date
Account Title
Debit
Credit
6/30/00
Interest Expense
37,893.80
Premium on Bonds
7,106.20
Cash
45,000
12/31/00
Interest Expense
37,893.80
Premium on Bonds
7,106.20
Cash
45,000
(d) On June 30, 2003, Bulldog Creations called the bonds at 98. Prepare the
journal entry to record the early retirement of the bonds. Assume the
effective interest method.
Date
Account Title
Debit
Credit
6/30/03
Premium on Bonds
103,027.34
Bonds Payable
1,000,000
Cash
980,000
Gain on Bond Retirement
123,027.34
2. On July 1, 2000, Hoya Company issued $1,000,000 of zero coupon bonds at 46.32%.
The bonds are due June 30, 2010. Assume annual compounding.
(a) Prepare Hoya’s journal entry on July 1, 2000 for the issuance of these bonds.
Date
Account Title
Debit
Credit
7/1/00
Cash
463,200
Discount on Bonds
536,800
Bonds Payable
1,000,000
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Document Summary

Long-term debt sample problems solutions: on january 1, 2000, bulldog creations, inc. issued ,000,000 of 10-year, 9% bonds with interest payable semi-annually on june 30 and december 31. At the time of issuance, the market interest rate was 7%. (a) prepare bulldog creations" journal entry on january 1, 2000 for the issuance of these bonds. Proceeds = ,000,000 (pv of scf, 3. 5%, 20) + ,000 (pv of oa, 3. 5%, 20) = ,142,124. 1 (b) prepare bulldog creations" journal entry on june 30, 2000 and december 31, 2000 assuming the effective interest method of amortization is used. 2 (c) prepare bulldog creations" journal entry on june 30, 2000 and december 31, 2000 assuming the straight-line method of amortization is used. Premium amortized every 6 months = 142,124 / 20 = ,106. 20. 45,000 (d) on june 30, 2003, bulldog creations called the bonds at 98. Prepare the journal entry to record the early retirement of the bonds.