On June 30, 2017, Sneezy purchased $75,000, 10%, 12 year bonds of Huntsman Corpo
ID: 2429609 • Letter: O
Question
On June 30, 2017, Sneezy purchased $75,000, 10%, 12 year bonds of Huntsman Corporation for $78,000 cash. The bonds pay interest semi-annually each June 30 and December 31. Straight-line amortization is used when necessary. On December 31, 2017, the market price of the bonds was $78,500. (Hint: you may want to identify face, stated rate, annual interest, semi-annual interest, price, and premium/discount) Assuming the bonds were purchased as available for sale securities, indicate the financial statement presentation of the investment related accounts on December 31, 2017. Be sure to indicate whether the account appears on the income statement or balance sheet and the amounts.
Explanation / Answer
The Premium on issue of Bond = $78000 - $75000 = $3000
The Straight line amortization, the Semiannual amortization = 3000/24 = 125
The Semiannual Interest payment = $75000 x 10%/2= 3750
Journal Entries will be as follows
Particular
Debit
Credit
(a)
The Cash
78000
The Premium on Issue of Bonds
3000
The Bonds payable
75000
b)
Interest payments
Dec 31, 17
The Interest Expense
3750
The Premium on Issue of Bonds
125
The Cash
3875
Jun 30, 18
The Interest Expense
3750
The Premium on Issue of Bonds
125
The Cash
3875
Dec 31,18
The Interest Expense
3750
The Premium on Issue of Bonds
125
The Cash
3875
Under Balance sheet
2017
2018
The Bonds Payable
75000
75000
The Premium on Issue of Bonds
2875
2625
The Cash
74125
66375
The Interest Expense
3750
7500
Particular
Debit
Credit
(a)
The Cash
78000
The Premium on Issue of Bonds
3000
The Bonds payable
75000
b)
Interest payments
Dec 31, 17
The Interest Expense
3750
The Premium on Issue of Bonds
125
The Cash
3875
Jun 30, 18
The Interest Expense
3750
The Premium on Issue of Bonds
125
The Cash
3875
Dec 31,18
The Interest Expense
3750
The Premium on Issue of Bonds
125
The Cash
3875
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