1. Bond Question (20 points) Uhernik, Inc, specializes in the production of tele

Question

1. Bond Question (20 points) Uhernik, Inc, specializes in the production of telecommunication satellites. The company prepares financial statements every 6 months on December 31 and June 30. In 2012 the company decides to expand their operations and finances it by issuing 5,000 $1,000 bonds at a 12% coupon rate (annual). The bonds pay interest on October 31 and April 30, and are due on April 30, 2027 a. (3 points) Assuming the bonds are issued on April 30, 2012 at 106, record the journal entry(ies) for the issue. b. (5 points) Record the proper adjusting entry(ies) at the preparation of financial statements on June 30, 2012

Explanation / Answer

Par value of bonds 5000000 Issue price of bonds (5000000+6%) 5300000 Premium on bonds payable 300000 Number of interest periods 30 Premium amortized each interest period 10000 Semi annual cash interest (5000000*12%*6/12) 300000 Journal entries S.no. Accounts title and explanations Debit $ Credit $ a. Cash Account Dr. 5300000      Bonds payable Account 5000000      Premium on Bonds payable 300000 b. Interest expense Dr. 96667 Premium on Bonds payable (10000*2/6) 3333      Interest payable (300000*2/6) 100000 c. Interest expense Dr. 193333 Premium on Bonds payable (10000*4/6) 6667 Interest payable Dr. 100000      Cash account 300000 d. Interest expense Dr. 38667 Premium on Bonds payable (10000*80%*1/6) 1333     Interest payable (300000*80%*1/6) 40000 Bonds payable Dr. 4000000 Premium on Bonds payable Dr. 54667 Loss on retirement of bonds Dr. 265333        Cash account 4320000 Note: Par value of Bonds repurchased 4,000,000 (5000,000*80%) Add: Unamortized Premium (10000*80%*7-1333) 54667 Book value of bonds 4,054,667 Repurchase price (4000*1080) 4320000 Loss on redemption -265,333

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.