ACCT20100 Chapter Notes - Chapter 10.1: Effective Interest Rate, Income Statement
Get access
Related Documents
Related Questions
Bond Discount, Entries for Bonds Payable Transactions
On July 1, Year 1, Danzer Industries Inc. issued $5,600,000 of 8-year, 9% bonds at a market (effective) interest rate of 10%, receiving cash of $5,296,534. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.
Required:
1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, Year 1. If an amount box does not require an entry, leave it blank.
2. Journalize the entries to record the following: If an amount box does not require an entry, leave it blank.
a. The first semiannual interest payment on December 31, Year 1, and the amortization of the bond discount, using the straight-line method. (Round your answer to the nearest dollar.)
b. The interest payment on June 30, Year 2, and the amortization of the bond discount, using the straight-line method. (Round your answer to the nearest dollar.)
3. Determine the total interest expense for Year 1. Round to the nearest dollar.
$
4. Will the bond proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of interest?
5. Compute the price of $5,296,534 received for the bonds by using Exhibit 5 and Exhibit 7. (Round you PV values to 5 decimal places and the final answers to the nearest dollar.) Your total may vary slightly from the price given due to rounding differences.
Present value of the face amount | $ |
Present value of the semi-annual interest payments | $ |
Price received for the bonds $ | |
(a) On 1/1/2015, Shocker Company issued $100,000 face valuebonds. The stated rate for these bonds is 10%, and the interest ispaid semi-annually, on June 30 and December 31. The market rate onthe date of issue was 12%. Bonds mature in three years, on December31, 2017. Required In the table provided, write the amount of thepayment, and the date of all payments that must be made by ShockerCompany to bond holders. Date Amount Date Amount
Date | Amount |
(b) On 1/1/2015, Sooner Company issued $100,000face value bonds that make semi-annually on June 30 and December31. The coupon rate is 10% and each semi-annual payment is $5,000.The market rate on the date of issue was 8%. Bonds mature in fiveyears, on December 31, 2019.
Required
On the date of issue, calculate the market price of the bond andrecord journal entry for the issuance of the bond. Showcalculations.
(b)answer for Sooner Company here:
Market Price of the bond on 1/1/2015 is:
Journal entry to be recorded on 1/1/2015:
Calculations for Sooner Company:
Number of period = ___ discount rate to be used = ___ %
Market Price of the bonds:
=
=
(c) On 1/1/2015, Gator Companyissued $200,000 face value bonds that mature in five years, onDecember 31, 2019. The bonds have stated rate of 10%, withsemi-annual payments, on June 30 and December 31. The market rateon the date of issue was 9%, and the bonds were sold for$207,913.
Required
In the amortization table provided, complete the entries for thedates indicated. Write journal entries to be recorded on 6/30/2015and 12/31/2015.
Date | Cash Interest Paid | Interest Expense | Increase/decrease in Outstanding Balance | Outstanding Balance |
1/1/2015 | ||||
6/30/2015 | ||||
12/31/2015 |