Gateway Unlimited sold $2,000,000 of 6-year, 10% bonds on January 1, 2012. The bonds pay interest semiannually
Question:
Required
a. Prepare all journal entries related to the bonds for 2012 and 2013 and show how the bonds would be reported on the December 31 balance sheets.
b. How would the 2012 statement of cash flows be affected by the bonds?
c. Prepare a bond amortization schedule.
d. On July 1, 2016, after the interest payment, Gateway redeems the bonds for 101. Prepare the entry to record the redemption.
e. How would the 2016 statement of cash flows be affected by the redemption?
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a 2012 Jan 1 Cash 1940000 Discount on Bonds Payable 60000 Bonds Payable 2000000 2000000 97 1940000 July 1 Interest Expense 105000 Discount on Bonds Payable 5000 Cash 100000 60000 12 periods 5000 2000000 10 612 100000 Dec 31 Interest Expense 105000 Discount on Bonds Payable 5000 Interest Payable 100000 2013 Jan 1 Interest Payable 100000 Cash 100000 July 1 Interest Expense 105000 Discount on Bonds Payable 5000 Cash 100000 Dec 31 Interest Expense 105000 Discount on Bonds Payable 5000 Interest Payable 100000 The bonds would be reported on the December 31 balance sheets as follows 2012 2013 Bonds payable 2000000 2000000 Less Unamortized discount 50000 40000 Carrying value 1950000 1960000 Unamortized discount at 2012 60000 5000 5000 50000 Unamortized discount at 2013 50000 5000 5000 40000 b The 2012 statement of cash flows will report in the financing activities section the 1940000 cash inflow associated with the issuance of the bonds The 100000 of interest paid on July 1 will be included in the operating activities section as a cash outflow c Interest Payment Interest Paid Discount Amortized Interest Expense Unamortized Discount Carrying Value 112012 60000 1940000 712012 100000 5000 105000 55000 1945000 112013 100000 5000 105000 50000 1950000 712013 100000 5000 105000 45000 1955000 112014 100000 5000 105000 40000 1960000 712014 100000 5000 105000 35000 1965000 112015 100000 5000 105000 30000 1970000 712015 100000 5000 105000 25000 1975000 112016 100000 5000 105000 20000 ...View the full answer
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