Terms: Bonds dated January 1, 2015, due five years from that date The annual acc
ID: 2474150 • Letter: T
Question
Terms: Bonds dated January 1, 2015, due five years from that date
The annual accounting period ends December 31. The bonds were issued at 104 on January 1, 2015, when the market interest rate was 8 percent. Assume the company uses straight-line amortization and adjusts for any rounding errors when recording interest expense in the final year.
1. Compute the cash received from the bond issuance in dollar.
2. Record the Journal Entries
A) Record the issuance of bonds with a face value of $630,000 at 104.
B) Record the interest payment on December 31, 2015.
C) Record the interest payment on December 31, 2016.
3. How much interest expense would be reported on the income statements for 2015 and 2016?
4. Compute the bond value which should be reported on the balance sheets at December 31, 2015 and 2016.
Face value: $630,000 Interest: 9 percent per year payable each December 31Terms: Bonds dated January 1, 2015, due five years from that date
The annual accounting period ends December 31. The bonds were issued at 104 on January 1, 2015, when the market interest rate was 8 percent. Assume the company uses straight-line amortization and adjusts for any rounding errors when recording interest expense in the final year.
1. Compute the cash received from the bond issuance in dollar.
2. Record the Journal Entries
A) Record the issuance of bonds with a face value of $630,000 at 104.
B) Record the interest payment on December 31, 2015.
C) Record the interest payment on December 31, 2016.
3. How much interest expense would be reported on the income statements for 2015 and 2016?
4. Compute the bond value which should be reported on the balance sheets at December 31, 2015 and 2016.
Explanation / Answer
Proceeds fro bond sale = 630000 * 104 / 100 = 655,200
1) Bank A/c Dr...................................................... 655,200
To 9% Bond ......................................................630,000
To Bond Premium ..............................................25,200
2) Interest A/c Dr...................................................... 56,700
To Bank ...............................................................56,700
3) P/L A/c Dr...........................................................61,740
To Interest A/c ....................................................56,700
To Bond Premium ................................................5,040
Interest for the years 2015 and 2016 would be 56,700. and the amortization of premium would be 5,040.
Bond value repost on 31 dec 2015 = 630000 + 20160 ( unamortized ) = 650,160
Bond value repost on 31 dec 2016 = 630000 + 15120 ( unamortized ) = 645,120
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