Presented below are three independent situations. (a) CeCe Winans Corporation in

ID: 2469615 • Letter: P

Question

Presented below are three independent situations.

(a) CeCe Winans Corporation incurred the following costs in connection with the issuance of bonds: (1) printing and engraving costs, $14,610; (2) legal fees, $48,290, and (3) commissions paid to underwriter, $77,330.

What amount should be reported as Unamortized Bond Issue Costs, and where should this amount be reported on the balance sheet? (Round answer to 0 decimal places, e.g. 38,548.)

(b) George Gershwin Co. sold $2,019,000 of 12%, 9-year bonds at 106 on January 1, 2014. The bonds were dated January 1, 2014, and pay interest on July 1 and January 1. If Gershwin uses the straight-line method to amortize bond premium or discount, determine the amount of interest expense to be reported on July 1, 2014, and December 31, 2014. (Round answer to 0 decimal places, e.g. 38,548.)

(c) Ron Kenoly Inc. issued $672,800 of 9%, 9-year bonds on June 30, 2014, for $563,525. This price provided a yield of 12% on the bonds. Interest is payable semiannually on December 31 and June 30. If Kenoly uses the effective-interest method, determine the amount of interest expense to record if financial statements are issued on October 31, 2014. (Round answer to 0 decimal places, e.g. 38,548.)

Amount to be reported as Unamortized Bond Issue Costs $ Unamortized Bond Issue Costs should be reported in Other AssetOther Liability section of the balance Sheet

Explanation / Answer

Printing and engraving costs of bonds

$ 14,610

Legal fees

$ 48,290

Commissions paid to underwriter

$ 77,330

Amount to be reported as Unamortized Bond Issue costs

$ 140,230

The Unamortized Bond Issue Costs, $140,230, should be reported as a deferred charge in the Other Assets section on the balance sheet.

Interest paid for the period from January 1 to June 30 and July 1 to December 31, 2014

$2,019,000 X 9% X 6/12

$ 90,855.00

Less: Premium amortization for the period from January 1 to June 30 and July 1 to December 31, 2014

{[($2,019,000 X 1.06) – $2,019,000] ÷ 9} X 6/12

$ 6,730.00

Interest expense to be recorded on July 1 and December 31, 2014

$ 84,125.00

Carrying amount of bonds on June 30, 2014

$ 563,525.00

Effective-interest rate for the period from June 30 to October 31, 2014 (12% X 4/12)

Interest expense to be recorded on October 31, 2014

$ 22,541.00