Barnett Corporation sold a $560,000, 6 percent bond issue on January 1, 2014. Th
ID: 2420778 • Letter: B
Question
Barnett Corporation sold a $560,000, 6 percent bond issue on January 1, 2014. The bonds pay interest each June 30 and December 31 and mature 5 years from January 1, 2014. For comparative study and analysis, assume three cases. Use Straight-line and disregard income tax unless specifically reqaured. Assume three independent selling scenarios: Complete the following schedule as of December 31, 2014 to analyze the differences among the three cases.
Case A Par
Case B at 90
Case C at 109
a. cash received
b. Bond interest expense
c. bonds payable 6 percent
d. unamortized discount
e. unamortized premium
f. net liability
Explanation / Answer
Case A : bonds issued at par
a)Cash received $560,000
b)Bond interest expense $560,000@6%* = $33,600
c)Bonds payable $560,000
d)Nil
e)Nil
F)net liability $560,000
Case2
a)Cash received 560,000@90% = $504,000
b)bond interest expense = 560,000@3% = $16,800
Add:discount amortised 56,000/5*1/2 = 5,600
Total interest expense = $22,400*2 = $44,800
c)Bonds payable $560,000
d)unamortised discount $56,000- 11,200 = $44,800
e)Nil
f)Net liabiltiy $560,000 - $44,800 = $515,200
Case 3:
a) Cash 560,000 @109% = $610,400
b)Bond interest 560,000@6% = $33,600
premium $50,400 /5 = 10,080
Interest expense = 23,520
c)Bonds payable $560,000
d)Nil
e) unamortised premium $50,400 - 10,080 = $40,320
f)Net liability = 560,000 + 40,320 = $600,320
Case A : bonds issued at par
a)Cash received $560,000
b)Bond interest expense $560,000@6%* = $33,600
c)Bonds payable $560,000
d)Nil
e)Nil
F)net liability $560,000
Case2
a)Cash received 560,000@90% = $504,000
b)bond interest expense = 560,000@3% = $16,800
Add:discount amortised 56,000/5*1/2 = 5,600
Total interest expense = $22,400*2 = $44,800
c)Bonds payable $560,000
d)unamortised discount $56,000- 11,200 = $44,800
e)Nil
f)Net liabiltiy $560,000 - $44,800 = $515,200
Case 3:
a) Cash 560,000 @109% = $610,400
b)Bond interest 560,000@6% = $33,600
premium $50,400 /5 = 10,080
Interest expense = 23,520
c)Bonds payable $560,000
d)Nil
e) unamortised premium $50,400 - 10,080 = $40,320
f)Net liability = 560,000 + 40,320 = $600,320
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