Ike issues $180,000 of 11%, three-year bonds dated January 1, 2021, that pay interest semiannually on June
Question:
Ike issues $180,000 of 11%, three-year bonds dated January 1, 2021, that pay interest semiannually on June 30 and December 31. They are issued at $184,566 when the market rate is 10%.
Required
1. Prepare the January 1 journal entry to record the bonds’ issuance.
2. Determine the total bond interest expense to be recognized over the bonds’ life.
3. Prepare an effective interest amortization table like Exhibit 14B.2 for the bonds’ first two years.
4. Prepare the journal entries to record the first two interest payments.
Exhibit 14B.2
EXHIBIT 14B.2 Effective Interest Amortization of Bond Premium $102,765 $101,888 $100,967 GIOCO $100,000 Carrying value|------ T $103,600 12/31/21 6/30/22 12/31/22 6/30/23 Bonds Payable 12/31/2023 100,000 12/31/23 12/31/2021 100,000 6/30/2022 12/31/2022 6/30/2023 12/31/2023 0 Bonds: $100,000 Par Value, Semiannual Interest Payments, Two-Year Life, 6% Semiannual Contract Rate, 4.9851% Semiannual Market Rate (C) (D) (B) Bond (A) Cash Interest Paid Interest Expense Premium Amortization Unamortized Premium 6% × $100,000 4.9851% X Prior (E) (A) - (B) Prior (D)-(C) (0) 12/31/2021 $3,600 (1) 6/30/2022 $ 6,000 $ 5,165 $ 835 2,765 (2) 12/31/2022 6,000 5,123 877 1,888 (3) 6/30/2023 6,000 5,079 921 967 (4) 12/31/2023 6,000 5,033 967 0 $24,000 $20,400 $3,600 Column (A) is the par value ($100,000) multiplied by the semiannual contract rate (6%). Column (B) is the prior period's carrying value multiplied by the semiannual market rate (4.9851%). Column (C) is the difference between interest paid and bond interest expense, or [(A) - (B)]. Column (D) is the prior period's unamortized premium less the current period's premium amortization. Column (E) is the par value plus unamortized premium, or [$100,000+ (D)]. Semiannual Interest Period-End (E) Carrying Value $100,000+ (D) $103,600 102,765 101,888 100,967 100,000
Step by Step Answer:
1 Date Particular Debit Credit January 1 Cash 1854566 Premium on b...View the full answer
Related Video
A journal entry is an act of keeping or making records of any transactions either economic or non-economic. Transactions are listed in an accounting journal that shows a company\'s debit and credit balances. The journal entry can consist of several recordings, each of which is either a debit or a credit
Students also viewed these Business questions
-
Brody Company makes Industrial cleaning solvents. Various chemicals, detergent, and water are mixed together and then bottled in 10-gallon drums. Brody provided the following information for last...
-
Shopko issues $185,000 of 12%, three-year bonds dated January 1, 2009, that pays interest semiannually on June 30 and December 31. They are issued at $189,620. Their market rate is 11% at the issue...
-
Kendall issues $175,000 of 11%, three-year bonds dated January 1, 2009, that pays interest semiannually on June 30 and December 31. They are issued at $179,439, and their market rate is 10% at the...
-
When a cosmetic manufacturer tests the market to determine how many women will buy eyeliner that has been tested for safety without subjecting animals to injury, is it involved in a descriptive...
-
A Sociology student investigated the association between a country's Literacy Rate and Life Expectancy, and then drew the conclusions listed below. Explain why each statement is incorrect. (Assume...
-
The term empty input describes what happens when a. the user presses the Spacebar Enter and then the key b. an input operation attempts to read data, but there is no data to read c. the user enters 0...
-
Twenty-five successive samples of 200 propellers, each taken from a production line, contained, respectively, 1, 8, 4, 6, 10, 7, 9, 5, 1, 0, 4, 8, 10, 3, 12, 5, 9, 16, 13, 7, 8, 4, 2, 9 and 2...
-
Would a court be likely to decide that the transaction between Holcomb and TCG was covered by the Uniform Commercial Code (UCC)? Why or why not?
-
An object moving along a horizontal track collides with and compresses a light spring (which obeys Hooke's Law) located at the end of the track. The spring constant is 40.7 N/m, the mass of the...
-
Figure 6.34 shows a multiplexer in a synchronous TDM system. Each output slot is only 10 bits long (3 bits taken from each input plus 1 framing bit). What is the output stream? The bits arrive at the...
-
Compute the selling price of 8%, 10-year bonds with a par value of $250,000 and semiannual interest payments. The annual market rate for these bonds is 10%. Use present value tables B.1 and B.3 in...
-
Compute the selling price of 10%, 15-year bonds with a par value of $240,000 and semiannual interest payments. The annual market rate for these bonds is 8%. Use present value tables B.1 and B.3 in...
-
Why do you think these small companies are exempted from having their financial statements audited?
-
A hiring manager who does not hire women because they do not want to deal with maternity leave requests is engaged as what?
-
Gojo will receive Php 12,000 per year for the next 10 years as royalty for her work on a finance book. What is the present value of her royalty income if the interest rate is 12 percent?
-
How did the development of railroads impact the cattle industry?
-
A politician raises funds by selling tickets to a dinner for $600. The politician pays $120 for each dinner and has fixed costs of $8,000 to rent a dining hall and wait staff. Write the profit P (in...
-
Please give a real-life example of the Swear Affidavit of Service and file it with the Clerk of the Court (to prove the claim was served).
-
Of all rectangles with a given diagonal, find the one with the maximum area.
-
The area of a rectangle is 30 cm 2 and its perimeter is 26 cm. Find the length and width of the rectangle.
-
Locate the note that discusses Research In Motions operations by segments in Appendix A. In what segment does it predominantly operate?
-
Does the income statement of Palm in Appendix A indicate the net income earned by its business segments? If so, list them.
-
Does the balance sheet of Nokia in Appendix A indicate the identifiable assets owned by its business segments? If so, list them.
-
Describe the phenomenon in current accounting practices that has been dubbed the Earnings Game in the article by Justin Fox. Why do companies play this game? Based off this article:...
-
On January 1, 2018, Bark Manufacturing Company Ltd. purchased a machine for $27,500, and expects to use the machine a total of 32,000 hours over the next four years. Bark set the residual value on...
-
Covid and post Covid Economic Recovery for each of the papers you are required to state the following : 1. what was the study about 2. what were the findings 3. list the research gaps and suggest new...
Study smarter with the SolutionInn App