Eagle Corporation sold $400,000, 896, 10-year bonds on December 31, 2013 at 98 T
ID: 2567972 • Letter: E
Question
Eagle Corporation sold $400,000, 896, 10-year bonds on December 31, 2013 at 98 T bonds pay interest semiannually on June 30th and December 31st. The company us straight-line amortization for premiums and discounts. Financial statements are prepared annually. (1) Prepare the journal entry on December 31, 2013 to record the issuance of the bonds. (3 points) (2) Prepare the journal entry necessary on June 30th to record the first interest payment (3 points) (3) Calculate the carrying value of the bonds at the end of the sixth year (December 3 2019). (2 points) (4) Calculate the total cost of borrowing (2 points) Bonus: Calculate the carrying value of the bonds on December 31, 2013. (2 points) MacBook AirExplanation / Answer
For each semiannual period, complete the table below to calculate the cash payment.
For each semiannual period, complete the table below to calculate the straight-line discount amortization.
For each semiannual period, complete the table below to calculate the bond interest expense.
the total bond interest expense to be recognized over the bonds' life.
Date of isuue of Bonds =31.12.2013 Issue Price = 98 Interest Paid Seminually Par value of bond = $400000 Dr CR 31.12.2013 Cash A/c 392000 [98*4000] Discount on bonds payable 8000 Bonds Payable 400000 2(a)For each semiannual period, complete the table below to calculate the cash payment.
Par (maturity) value Annual Rate Year Semiannual cash interest payment $400,000 x 8% x 0.5 year = $16,000 2(b)For each semiannual period, complete the table below to calculate the straight-line discount amortization.
Par (maturity) value Bonds price Discount on Bonds Payable Semiannual periods Straight-line discount amortization $400,000 - $392,000 = $8,000 ÷ 20 [10 years *2 period per year] = 400 2(c)For each semiannual period, complete the table below to calculate the bond interest expense.
Semiannual cash payment Discount amortization Bond interest expense $16,000 + 400 = $16,400 JOURNAL ENTRY Dr CR 30.06.2014 Bond interest expense 16000 Discount on bonds payable 400 Cash A/c 16400 3 Semiannual Period-End Unamortized Discount Carrying Value 31-12-13 $8,000 $392,000 [400000-8000] 30-06-14 7,600 391,600 31-12-14 7,200 391,200 30-06-15 6,800 390,800 31-12-15 6,400 390,400 4the total bond interest expense to be recognized over the bonds' life.
Total bond interest expense over life of bonds: Amount repaid: 20 payments of $16,000 320000 Par value at maturity 400,000 Total repaid 720000 Less amount borrowed 392,000 Total bond interest expense 328,000Related Questions
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