ACCT20100 Chapter Notes - Chapter 10.1-10.3: Premium Bond

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fuchsiahound508

26 Nov 2016

School

Department

Accountancy

Course

ACCT20100

Professor

Schmuhl

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Document Summary

Bonds issued at premium: bonds sell at premium when the market rate is lower than the stated interest rate. Bond is sold for more than has to be paid back: credit bonds payable for the par value and credit premium on bonds. Bond purchaser= receives both interest and return from the bond premium when it is amortized. At maturity, after the last interest payment, the bond premium is fully amortized and the maturity amount equals the book value of the bonds. Basic difference between effective-interest amortization of a bond. Discount and bond premium= amortization of a discount increases book value of liability while amortization of a premium reduces it: ** regardless of whether a bond was sold at par, at discount, or at. Premium, the same entry is made at the end of maturity when the bond is fully paid off *: example: Zero coupon bonds: a bond that does not pay periodic cash interest.

Related Questions

MacBride Enterprises sold $200,000 of bonds on December 31, 2018. A portion of the amortization table appears below.

Period	Cash Payment (Credit)	Interest Expense (Debit)	Premium on Bonds Payable (Debit)	Premium on Bonds Payable Balance (Credit)	Bond Payable Carrying Value (Credit)
At issue				$6,457	$206,457
06/30/19	$9,000	$8,465	$535	5,922	205,922
12/31/19	9,000	8,443	557	5,365	205,365
06/30/20	9,000	8,420	580	4,785	204,785
12/31/20	?	?	?	?	?

Required:

1. Indicate the stated annual interest rate on these bonds.
%

2. Calculate the effective annual interest rate on these bonds. (Note: Round to the nearest 0.1%.)
%

3. Determine the interest expense and premium amortization for the interest period ending December 31, 2020. (Note: Round to the nearest dollar.)

Period	Cash Payment (Credit)	Interest Expense (Debit)	Premium on Bonds Payable (Debit)	Premium on Bonds Payable Balance (Credit)	Bond Payable Carrying Value (Credit)
At issue				$6,457	$206,457
6/30/19	$9,000	$8,465	$535	5,922	205,922
12/31/19	9,000	8,443	557	5,365	205,365
6/30/20	9,000	8,420	580	4,785	204,785
12/31/20

champagnemole219

Please show the work.

Presented below are selected transactions on the books ofSimonson Corporation.

May 1, 2014		Bonds payable with a par value of $934,800, which are datedJanuary 1, 2014, are sold at 105 plus accrued interest. They arecoupon bonds, bear interest at 11% (payable annually at January 1),and mature January 1, 2024. (Use interest expense account foraccrued interest.)
Dec. 31		Adjusting entries are made to record the accrued interest onthe bonds, and the amortization of the proper amount of premium.(Use straight-line amortization.)
Jan. 1, 2015		Interest on the bonds is paid.
April 1		Bonds with par value of $365,500 are called at 102 plus accruedinterest, and redeemed. (Bond premium is to be amortized only atthe end of each year.)
Dec. 31		Adjusting entries are made to record the accrued interest onthe bonds, and the proper amount of premium amortized.

Prepare journal entries for the transactions above.

fuchsiaraccoon556

On January 1, 2014, Walter Corporation issued $3,330,000 of10-year, 9% convertible debentures at 103. Interest is to be paidsemiannually on June 30 and December 31. Each $1,000 debenture canbe converted into 8 shares of Walter Corporation $104 par valuecommon stock after December 31, 2015.

On January 1, 2016, $333,000 of debentures are converted intocommon stock, which is then selling at $115. An additional $333,000of debentures are converted on March 31, 2016. The market price ofthe common stock is then $118. Accrued interest at March 31 will bepaid on the next interest date.

Bond premium is amortized on a straight-line basis.

Make the necessary journal entries (enter the correct values)for:

(a) December 31, 2015 b) January 1, 2016 c) March 31, 2016 d)June 30, 2016

Record conversions using the book value method. Round answers to0 decimal places, e.g. 5,275

(a) December 31, 2015:

Bond InterestExpense....................................... ?

Premium on BondsPayable............................... ?

Cash.................................................................. ?

(B) January 1, 2016:

BondsPayable............................................................?

Premium on Bonds Payable......................................?

Common Stock............................................. ?

Paid-in Capital in Excess of Par................. ?

(C) March 31, 2016:

Bond InterestExpense............................................... ?

Premium on Bonds Payable...................................... ?

Bond Interest Payable................................. ?

BondsPayable..................................................... ?

Premium on BondsPayable............................... ?

Common Stock............................................. ?

Paid-in Capital in Excess of Par................. ?

(D) June 30, 2016:

Bond InterestExpense............................................... ?

Premium on Bonds Payable......................................?

Bond InterestPayable................................................ ?

Cash............................................................... ?

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ACCT20100 Chapter Notes - Chapter 10.1-10.3: Premium Bond

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