On June 30, 2015, Upton, Inc. sold $3,000,000 (face value) of bonds. The bonds a
ID: 2598358 • Letter: O
Question
On June 30, 2015, Upton, Inc. sold $3,000,000 (face value) of bonds. The bonds are dated June 30, 2015, pay interest annually on June 30, and will mature on June 30, 2018. The following schedule was prepared by the accountant for 2015.
On the basis of the above information, answer the following questions.
Interest Period Interest to
be Paid Interest
Expense Amortization Unamortized
Amount Bond
Carrying Value $75,000 $2,925,000 1 $240,000 $263,250 $23,250 51,750 2,948,250 What is the stated interest rate for this bond issue? Stated interest rate What is the market interest rate for this bond issue? Market interest rate What was the selling price of the bonds as a percentage of the face value? (Round answer to 1 decimal place, e.g. 52.7.) Selling price
Explanation / Answer
Satatd interest of the bonds = Interest to be paid / Face value = $240,000 / $3,000,000 = 0.08 or 8 %
Market interest rate of the bonds = Interest Expense / Bond Carrying Value = $263,250 / $2,925,000 = 0.09 or 9%
Seeling price of the bonds as % of Face Value = Bond Carrying Value / Face value = $2,925,000 / $3,000,000 = 0.975 or 97.50 %
Journal Entries
Note : As the interest is payable annually on June 30 , thus for December 31, 2015 there will be no interest payment but we need to record the interest expense & amortization of discount of the year & create a short term liability for six month in the name of Bonds Interest Payable.
Date Accounts titles & explanation Debit ($) Credit ($) June 30, 2015 Cash 2,925,000 Discount on Bonds Payable 75,000 Bonds Payable 3,000,000 December 31, 2015 Interest Expense [$263,250 * 6 /12] 131,625 Discount on Bonds Payable [$23,250 *6/12] 11,625 Bonds Interest Payable[$240,000 *6/12] 120,000Related Questions
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