10. Jefferson, Inc., issued $80,000 of 10-year, 8% bonds payable on January 1, 2
ID: 2424897 • Letter: 1
Question
10. Jefferson, Inc., issued $80,000 of 10-year, 8% bonds payable on January 1, 2010. Jefferson pays interest each January 1 and July 1 and amortizes discount or premium by the straight-line method. The company can issue its bonds payable under various conditions.
Requirements
R1. Journalize Jefferson’s issuance of the bonds and first semiannual interest payment assuming the bonds were issued at par value. Explanations are not required.
R2. Journalize Jefferson’s issuance of the bonds and first semiannual interest payment assuming the bonds were issued at a price of 93. Explanations are not required.
R3. Journalize Jefferson’s issuance of the bonds and first semiannual interest payment assuming the bonds were issued at a price of 105. Explanations are not required.
R4. Which bond price results in the most interest expense for Jefferson? Explain in detail.
Explanation / Answer
R1. Journalize Jefferson’s issuance of the bonds and first semiannual interest payment assuming the bonds were issued at par value. Jan 1 ,2010 Bank ----------Dr 80,000 To 8% Bonds 80,000 (Being 80000 bonds issued at par value) July 1 ,2010 Interest on Bonds ----------Dr 3,200 To Bank (80000*8%*6/12) 3200 (BeingFirst semiannual interest paid) R2. Journalize Jefferson’s issuance of the bonds and first semiannual interest payment assuming the bonds were issued at a price of 93 Jan 1 ,2010 Bank ----------Dr(80000/100*93) 74,400 Amortised Discout ------Dr 5600 To 8% Bonds 80,000 (Being 80000 bonds issued at a price of 93 each) July 1 ,2010 Interest on Bonds ----------Dr 3,200 To Bank (80000*8%*6/12) 3200 (BeingFirst semiannual interest paid) R3. Journalize Jefferson’s issuance of the bonds and first semiannual interest payment assuming the bonds were issued at a price of 105 Jan 1 ,2010 Bank ----------Dr(80000/100*105) 84,000 To 8% Bonds 80,000 To Bonds Premium 4,000 (Being 80000 bonds issued at a price of 105 each) July 1 ,2010 Interest on Bonds ----------Dr 3,200 To Bank (80000*8%*6/12) 3200 (BeingFirst semiannual interest paid) R4. Which bond price results in the most interest expense Note - 1: Always interest will be paid on pace of the bond value (i.e.80000) and we are not consider whether bond issued under discount or premium
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