During 2014 and 2015, Cook Co. completed the following transactions relating to

Question

During 2014 and 2015, Cook Co. completed the following transactions relating to its bond issue. The company’s fiscal year ends on December 31.

Issued $360,000 of eight-year, 5 percent bonds for $348,000. The semiannual cash payment for interest is due on March 1 and September 1, beginning September 2014.

Recognized interest expense including the amortization of the discount and made the semiannual cash payment for interest.

Recognized interest expense including the amortization of the discount and made the semiannual cash payment for interest.

Recognized interest expense including the amortization of the discount and made the semiannual cash payment for interest.

When the bonds were issued, was the market rate of interest more or less than the stated rate of interest?

If the bonds had sold at face value, what amount of cash would Cook Co. have received?

Prepare the liabilities section of the balance sheet at December 31, 2014 and 2015.

Determine the amount of interest expense Cook would report on the income statements for 2014 and 2015.

Determine the amount of interest Cook would pay to the bondholders in 2014 and 2015.

During 2014 and 2015, Cook Co. completed the following transactions relating to its bond issue. The company’s fiscal year ends on December 31.

Explanation / Answer

ans a-1 More Market rate was more because bonds were issued at discount. ans a2 If the bonds were sold at face value than the cash received would have been $360000 A B C D E F G               $ Date Interest Payment @2.5% Interest expenses at 2.76%*G Amortization of Bond C-B cr, balance in the a/c Bond Discount a/c Credit balance in the Bond payable Carrying value of Bond F-E Credit cash Debit Interest Expense Bond Discount Mar 1 2014 12000 360000 348000 Sep 1 2014 9000 9605 605 11395 360000 348605 Mar 1 2015 9000 9621 621 10774 360000 349226 Sep 1 2015 9000 9639 639 10135 360000 349865 9000 9656 656 9479 360000 350521 9000 9674 674 8804 360000 351196 9000 9693 693 8111 360000 351889 9000 9712 712 7399 360000 352601 9000 9732 732 6668 360000 353332 9000 9752 752 5916 360000 354084 9000 9773 773 5143 360000 354857 9000 9794 794 4349 360000 355651 9000 9816 816 3533 360000 356467 9000 9838 838 2694 360000 357306 9000 9862 862 1833 360000 358167 9000 9885 885 947 360000 359053 9000 9910 910 37 360000 359963 working Dr Cr 1-Mar Cash 348000 Discount on Bonds payable 12000 Bonds Payable 360000 1-Sep Interest expenses 9605 Discount on Bonds payable 605 Cash 9000 31-Dec-14 Interest expenses (9621*4/6) 6414 Discount on Bonds payable 414 Interest payable (9000*4/6) 6000 Mar 1 2015 Interest expenses 3207 Interest payable 6000 Discount on Bonds payable 207 Cash 9000 1-Sep Interest expenses 9639 Discount on Bonds payable 639 Cash 9000 31-Dec-15 Interest expenses 6438 Discount on Bonds payable 438 Interest payable 6000 b) Liabilities section 2014 2015 Bonds payable 360000 360000 Less: dixcount on Bonds payable 10981 9905 Carrying value 349019 350095 c) 2014 2015 I nterest expenses 16019 19284 2014 2015 d) Amt of interest paid 9000 18000

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