Serotta Corporation is planning to issue bonds with a face value of $380,000 and

Question

Serotta Corporation is planning to issue bonds with a face value of $380,000 and a coupon rate of 12 percent. The bonds mature in two years and pay interest quarterly every March 31, June 30, September 30, and December 31. All of the bonds were sold on January 1 of this year. Serotta uses the effective-interest amortization method and also uses a premium account. Assume an annual market rate of interest of 8 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.) 11.value: 10.00 pointsRequired information

1. Provide the journal entry to record the issuance of the bonds January 1.(If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answers to nearest whole dollar amount.)

2. Provide the journal entry to record the interest payment on March 31, June 30, September 30, and December 31 of this year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answers to nearest whole dollar amount.)

Required information 3. What bonds payable amount will Serotta report on this year's December 31 balance sheet? (Round your final answers to nearest whole dollar amount.)

Explanation / Answer

Issue price: Present value of interest Quarterly received for 2 years i.e. 8 payment at 3% 83510.7 ($ 11400 * Annuity factor for 8 period at 3% i.e. 7.3255) Present value of Maturity received at year-2 ($380000* 0.8535) 324330 ISSUE PRICE 407841 Journal Entry: a. Cash Account Dr. 407841       Bonds payable 380000       Premium on Bonds payable 27841 31-Mar Interest Expesnse Dr. 8157 Premium On Bonds payable Dr. 3243 Cash Aaccount 11400 30-Jun Interest Expesnse Dr. 8092 Premium On Bonds payable Dr. 3308 Cash Aaccount 11400 30-Sep Interest Expesnse Dr. 8026 Premium On Bonds payable Dr. 3374 Cash Aaccount 11400 31-Dec Interest Expesnse Dr. 7958 Premium On Bonds payable Dr. 3442 Cash Aaccount 11400 Amortization table: Date cash Interest Interest exp Premium Amortizd Unamortizwd Premium Carrying value 31.03. 11400 8157 3243 24598 404598 30.06 11400 8092 3308 21290 401290 30.09 11400 8026 3374 17916 397916 31.12 11400 7958 3442 14474 394474 Balance Sheet: Bonds payable 380,000 Add: Premium on Bonds payable 14474 Net balance in bonds payable 394,474

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.