Grider Industries, Inc. issued $6,000,000 of 8% debentures on May 1, 2014 and to
ID: 2458468 • Letter: G
Question
Grider Industries, Inc. issued $6,000,000 of 8% debentures on May 1, 2014 and totaling $5,323,577. The bonds pay interest semiannually on May 1 and November 1. The data on these bonds is November 1, 2018. The firm uses the effective-interest method of amortizing discounts and premiums. The bonds were sold to yield an effective-interest rate of 10% Calculate the total dollar amount of discount or premium amortization during the first year (5/1/14 through 4/30/15) these bonds were outstanding. (Show computations and round to the nearest dollar.) Grove Corporation issued S800,000 of 8% bonds on October 1,2014, due on October 1, 2015. The interest is to be paid twice a year on April 1 and October 1. The bonds were sold to yield 10% effective annual interest. Grove Corporation closes its books annually on December 31. Complete the following amortization schedule for the dales indicated. (Round all answers to the nearest dollar.) Use the effective-interest method. Prepare the adjusting entry for December 31, 2015. Use the effective-interest method. Compute the interest expense to be reported in the income statement for the year ended December 31, 2015. Titama Co sells $600,000 of 12% bonds on June 1, 2015. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2020. The bonds yield 10%, selling for $638,780 On October 1, 2016, Titania buys back $300,000 worth of bonds for $315,000 (includes accrued interest). Give entries through October 1, 2016. Prepare all of the relevant journal entries from the time of sale until the date indicated. Amortize premium or discount on interest dates and at year-end. (Assume that reversing entries were made.)Explanation / Answer
Q 1 Selling Price of the bonds= PV=(240000*((1-(1+0.05)^-9)/0.05))+(6000000/(1+0.05)^9) 5573531 Discount on issue of bonds (to be amortised) 6000000-5573531=426469 Bond Amortisation- Effective interest rate method A B C D E F G Date Int payment stated 8%/2 * face Int exp Mkt10%/2 * previous BV in G Amortisation of bond discount C minus B Debit balance in the account Bond discount Credit balance in the account Bonds payable Book value of the bonds F minus E Credit Cash Debit Interest expense Cr Bond discount Carrying Value May 1, 2014 426469 6000000 5573531 Nov 1, 2014 240000 278677 38677 387792 6000000 5612208 May 1, 2015 240000 280610 40610 347182 6000000 5652818 79287 Nov 1, 2015 240000 282641 42641 304541 6000000 5695459 May 1, 2016 240000 284773 44773 259768 6000000 5740232 Nov 1, 2016 240000 287012 47012 212757 6000000 5787243 May 1, 2017 240000 289362 49362 163394 6000000 5836606 Nov 1, 2017 240000 291830 51830 111564 6000000 5888436 May 1, 2018 240000 294422 54422 57142 6000000 5942858 Nov 1, 2018 240000 297143 57143 0 6000000 6000000 TOTALS 2160000 2586469 426469 Bond discount Amortisation in the first year (From the table) = $ 79287 Q2 a Bond Amortisation- Effective interest rate method A B C D E F G Date Int payment stated 8%/2 * face Int exp Mkt10%/2 * previous BV in G Amortisation of bond discount C minus B Debit balance in the account Bond discount Credit balance in the account Bonds payable Book value of the bonds F minus E Credit Cash Debit Interest expense Cr Bond discount Carrying Value Oct 1, 2014 61776 800000 738224 Apr 1, 2015 32000 36911 4911 56865 800000 743135 Oct 1 2015 32000 37157 5157 51708 800000 748292 Upto Dec.31.2015 (3 Mths.) 16000 18707 2707 49001 800000 750999 b. Interest expense 18707 Bond discount to be amortised 2707 Interest payable 16000 ( Provided for interest on bonds for 3 months (Oct- Dec.15) (as per table) C. Interest expense to be reported for the year 2015 Reading from the table 36911+37157+18707(Oct-Dec 2015)-18707(Oct-Dec2014) 74068 Q 3 Date Account Titles Debit Credit Explanation June 1, 2015 Cash 638780 Premium on Bonds payable 38780 Sale of bonds on premium 12% Bonds Payable 600000 Dec.1,2015 Interest expense 30000 600000*10%/2 Premium amortised 6000 36000-30000 Cash 36000 600000*12%/2 June 1, 2016 Interest expense 30000 Premium amortised 6000 Cash 36000 Oct.1,2016 Interest expense 10000 300000*10%/2 Premium still to beamortised 13390 (38780/2)-3000-3000 Bonds payables 300000 Face value Cash 315000 Cash paid Gain on buy back 8390 Balancing figure (Buy-back of $ 300000 worth bonds)
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