The Square Foot Grill, Inc., issued $200,000 of 10-year, 6 percent bonds on July
ID: 2582765 • Letter: T
Question
The Square Foot Grill, Inc., issued $200,000 of 10-year, 6 percent bonds on July 1, 2016, at 102. Interest is payable in cash semiannually on June 30 and December 31. The straight-line method is used for amortization.
What amount of interest expense will Square Foot report on the financial statements for 2016 and 2017?
c.What amount of interest expense will Square Foot report on the financial statements for 2016 and 2017?
d. What amount of cash will Square Foot pay for interest in 2016 and 2017?Required information 0.25 points c. What amount of interest expense will Square Foot report on the financial statements for 2016 and 2017? 2016 2017 Interest expense Hints References eBook & Resour Required Information Hint #1 The folowing information applies to the questions displayed below. The Square Foot Grill, Inc, ssued $200,000 of 10-yr6percent bonds on July 1, 2016, at 102. Interest is payable in cash semiannually on June 30 and Dcmber 31. The straight-line method is used for amortization. 12· Required information 0.25 points d. What amount of cash will Square Foot pay for interest in 2016 and 2017? 2016 2017 Cash outflow for interest
Explanation / Answer
Square Foot Grill, Inc. issued the bond at premium of $2 per bond, so the amount
received on issuance of bond is 2000 bonds x $102 = $204000
The company need to amortize the amount of premium over the life of bond
Journal entry recorded at the time of issuance of bond
1-Jul-16
Cash a/c Dr.
$204,000
Bond Payable a/c Cr.
$200,000
Premium on Bonds Payable a/c Cr.
$4,000
Now this $4000 needed to be amortize over 10 years (the life of bond)
Amount need to amortize annually = 400 (4000/10)
Interest payable for bond = $200000 x 6%
= $12000 annually
Interest expense for 2016
Semiannual interest expense is $ 6000 ($12000/2)
Journal entry to record the transaction
31-Dec-16
Interest expenses
$5,600
Premium on bonds payable
$400
Cash
$6,000
30-Jun-17
Interest expenses
$5,600
Premium on bonds payable
$400
Cash
$6,000
31-Dec-17
Interest expenses
$5,600
Premium on bonds payable
$400
Cash
$6,000
Amount of interest expense reported in financial statements
2016
$5,600
2017
$11,200
Amount of cash Square root pay for interest
2016
$6,000
2017
$12,000
Square Foot Grill, Inc. issued the bond at premium of $2 per bond, so the amount
received on issuance of bond is 2000 bonds x $102 = $204000
The company need to amortize the amount of premium over the life of bond
Journal entry recorded at the time of issuance of bond
1-Jul-16
Cash a/c Dr.
$204,000
Bond Payable a/c Cr.
$200,000
Premium on Bonds Payable a/c Cr.
$4,000
Now this $4000 needed to be amortize over 10 years (the life of bond)
Amount need to amortize annually = 400 (4000/10)
Interest payable for bond = $200000 x 6%
= $12000 annually
Interest expense for 2016
Semiannual interest expense is $ 6000 ($12000/2)
Journal entry to record the transaction
31-Dec-16
Interest expenses
$5,600
Premium on bonds payable
$400
Cash
$6,000
30-Jun-17
Interest expenses
$5,600
Premium on bonds payable
$400
Cash
$6,000
31-Dec-17
Interest expenses
$5,600
Premium on bonds payable
$400
Cash
$6,000
Amount of interest expense reported in financial statements
2016
$5,600
2017
$11,200
Amount of cash Square root pay for interest
2016
$6,000
2017
$12,000
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