On January 1, 2014, Floppy Co. issued 4% bonds with a face value of $400,000 whe
ID: 2421254 • Letter: O
Question
On January 1, 2014, Floppy Co. issued 4% bonds with a face value of $400,000 when the market interest rate was 6%. The bonds are due in ten years, and interest is payable every Januarey 1 and June 30. Floppy does not elect the fair value option for reporting its financial liabilities. Do not provide any journal explanations. If no entry is necessary, write "no entry." Round all numbers to the nearest dollar.
Required:
a. Prepare the journal entries for the bond issue on January 1, 2014.
b. Prepare the journal entry for the interest payment on June 30, 2016.
c. Prepare any required end of 2016 adjusting entry.
Explanation / Answer
Answer a. Calculation of Issue Price of Bonds PV of $400000 recd in 20 Periods 221480 ($400000 X .5537 (N=20, i=3) PV of Interest $8000 recd for each of 20 Periods 119020 ($8000 X 14.8775 (N=20, i=3) PV (Issue Price) Of Bonds 340500 Journal Entry Date Particulars Dr. Amount Cr. Amount Jan-01 Cash Dr. 340,500 2014 Discount on Issue of Bonds Dr. 59,500 To Bonds Payable 400,000 (Issue of 4% Bonds issue at Discount) Answer. b. Journal Entry Date Particulars Dr. Amount Cr. Amount June-30 Interest Exp. Dr. 10,493 2016 To Cash 8,000.00 To Bonds Payable 2,493 (Interest paid on bonds) Answer. C Journal Entry Date Particulars Dr. Amount Cr. Amount Dec-31 Profit & Loss A/c Dr. 5,061 2016 To Discount on Issue of Bonds 5,061 (Adjusting Entry Passed for amortization of discount on issue of Bonds) Amortization Table Semiannual Interest Period -End Cash Interest Paid Bond Interest expense Discount Amortization Unamortized Discount Carrying Value 01/01/2014 - - - 59,500 340,500 06/30/2014 8,000 10,215 2,215 57,285 342,715 12/31/2014 8,000 10,281 2,281 55,004 344,996 06/30/2015 8,000 10,350 2,350 52,654 347,346 12/31/2015 8,000 10,420 2,420 50,233 349,767 06/30/2016 8,000 10,493 2,493 47,740 352,260 12/31/2016 8,000 10,568 2,568 45,172 354,828 06/30/2017 8,000 10,645 2,645 42,528 357,472 12/31/2017 8,000 10,724 2,724 39,803 360,197 06/30/2018 8,000 10,806 2,806 36,998 363,002 12/31/2018 8,000 10,890 2,890 34,108 365,892 06/30/2019 8,000 10,977 2,977 31,131 368,869 12/31/2019 8,000 11,066 3,066 28,065 371,935 06/30/2020 8,000 11,158 3,158 24,907 375,093 12/31/2020 8,000 11,253 3,253 21,654 378,346 06/30/2021 8,000 11,350 3,350 18,303 381,697 12/31/2021 8,000 11,451 3,451 14,853 385,147 06/30/2022 8,000 11,554 3,554 11,298 388,702 12/31/2022 8,000 11,661 3,661 7,637 392,363 06/30/2023 8,000 11,771 3,771 3,866 396,134 12/31/2023 8,000 11,884 3,866 0 400,000 160,000 219,518 59,500
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