COMPLETE THIS ASSIGNMENT AND SUBMIT IT INTO THE \'PROJECT3BONDS\' DROPBOX BY THE
ID: 2583505 • Letter: C
Question
COMPLETE THIS ASSIGNMENT AND SUBMIT IT INTO THE 'PROJECT3BONDS' DROPBOX BY THE DUE DATE OF DECEMBER 4TH RENAME THE FILE TO YOUR LAST NAME On January 1st 2017 the ACME Company issued sold $1,000,000 10% 12 year semi-annual bonds when the market rate of interest was 8%. These bonds pay interest semiannually on July 1 and January 1. part a: make the journal entry ACME makes when it sold the bonds part b:-make the journal entry ACME makes when it makes the first interest payment on 7/1/17 part c: make the journal entry ACME makes on December 31, 2017 connected with these bonds 6 part d: fill in the table value 17 18 carry value of debt terest exp paymentnew carry value of debt 19 1/1/2017 20 7/1/2017 21 1/1/2018 22 7/1/2018 23 1/1/2019 24 25 parte: On 1/1/2019 ACME retired the bonds at 101. Make the necessary journal entry for 26 27 the retirement of the bonds. 28Explanation / Answer
(a) Journal entry ACME makes when it sold the bonds:
Cash / Bank A/C---------------------------------------------------------------Dr. 1,020,000
To 12% Bonds Payable A/C 1,000,000
To Premium on Issue Of Bonds A/C 20,000
Premium on Issue of bonds is calculated as the percentage difference between the bond's rate of interest and market rate of interest i.e. 2% of 1,000,000.
(b) Journal entry for the first interest payment on July 1, 2017:
Interest Expense A/C--------------------------------------------------------Dr. 49,167
Premium On Bonds Payable A/C-----------------------------------------Dr. 833
To Cash / Bank A/C 50,000
1. Total Interest payable = 1,000,000 * 10/100 * 6/12 = 50,000
2. Premium on Bonds to be amortised = 20,000 * 1/12 * 6/12 = 833
(c) Journal entry on December 31, 2017:
Interest Expense A/C--------------------------------------------------------------Dr. 49,167
Premium On Bonds Payable A/C----------------------------------------------Dr. 833
To Interest Payable A/C 50,000
Amount is credited to Interest payable A/C because the journal entry is made on December 31,2017 whereas the date for payment of interest is January1, 2018.
(d) Table Values
1,020,000
(e) Journal entry to record the retirement of bonds on January1, 2019:
10% Bonds payable A/C---------------------------------------------------Dr. 1,000,000
Premium on Bonds A/C----------------------------------------------------Dr. 26,667
To Cash / Bank A/C 1,000,000
To Gain on Retirement Of Bonds A/C 26,667
Gain on retirement of bonds is calculated as the sum of gain of $1 at the time of retirrement which comes out to be $10,000 plus the unamortised amount of premium on bonds payable which is 20,000- 1,667- 1,667 = 16,667. So total gain is 26,667.
CARRY VALUE OF DEBT INTEREST EXP PAYMENT NEW CARRY VALUE OF DEBT 1/1/2017 1,020,000 NIL NIL1,020,000
7/1/2017 1,020,000 49,167 50,000 1,019,167 1/1/2018 1,019,167 49,167 50,000 1,018,334 7/1/2018 1,018,334 49,167 50,000 1,017,501 1/1/2019 1,017,501 49,167 50,000 1,016,668Related Questions
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