The discount or premium on bonds payable is recorded in a separate account whose balance is...
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The discount or premium on bonds payable is recorded in a separate account whose balance is combined with bonds payable on the financial statement. Since the normal balance for a discount is a debit, it will be deducted from the value of the bonds payable. Alternatively, a premium's normal balance is a credit and will be added to the bonds payable. 1. Assume that 8% bonds with a face value of $100,000, due on December 31, 2030, were issued on December 31, 2010. Click on each selling price to see how the selling price affects the journal entry and the balance sheet presentation on the issue date. Selling Price : $90,000 $100,000 $110,000 2. York Inc. issued bonds on January 1, 2012, that had a two year maturity. The bonds had a face value of $115,000 and a contract rate of interest of 10%, which is paid semiannually on June 30 and December 31. а. Assume that the bond's market rate of interest is 14%, and its current selling price is $107,210. The selling price of the bond is - Select your answer- + the face value of the bonds, which means that these bonds were issued at - Select your answer - When the bond is recorded in the journal, - Select your answer - + should be - Select your answer - + for $ 7790 . The - Select your answer - + will be amortized over the life of the bonds. b. Assume that the bond's market rate of interest is 7%, and its current selling price is $121,336. What entry is recorded with the bond issuance? - Select your answer - Interest Expense and Amortization The bond pays interest based on the terms of the bond and the issuer records interest expense based on the actual interest expense when the discount or premium is factored into the amount received with the issue. The discount or premium is amortized over the life of the bond using either the straight-line method or the effective interest rate method. 1. When a discount is amortized, the amortization will be recorded with a - Select your answer - + to - Select your answer - When a premium is amortized, the amortization will be recorded with a - Select your answer - to - Select your answer - 2. Bonds and amortization of premiums and discounts are a difficult topic to master, so we will start with the straight-line method. a. Fill in the amortization table for each scenario using the straight-line method. Roll over the headings for help with the calculations. Remember, the straight line method amortizes the discount or premium by the same amount each period. Enter all amounts as positive numbers. If required, round amount for the amortized premium/discount to the nearest dollar. (Note: Due to rounding issues, some amounts have been provided for you in the tables.) Semi- Cash Interest Discount on Discount on Carrying annual Payment Expense Bonds Payable Bonds Payable Value Period (Credit) (Debit) (Credit) Balance 7,790 107,210 1 5,750 7,698 1,948 5,842 109,158 3 1,948 4 115,000 Semi- Cash Interest Premium on Premium on Carrying annual Payment Expense Bonds Payable Bonds Payable Value Period (Credit) (Debit) (Debit) Balance 6,336 121,336 1 5,750 4,166 1,584 4,752 119,752 1,584 4 115,000 2. 3. b. Fill in the amortization table for each scenario using the effective interest rate method. Roll over the headings for help with the calculations. Enter all amounts as positive numbers. If required, in your computations round the interest expense to the nearest dollar. (Note: Due to rounding issues, some amounts have been provided for you in the tables.) Assume the annual stated rate is 10% and effective rate is 14%. Semi- Cash Interest Discount on Discount on Carrying annual (Credit) (Debit) Bonds Payable Bonds Payable Value Period (Debit) Balance 7,790 107,210 1 5,750 7,505 1,755 6,035 108,965 2,148 4 2,150 115,000 Assume the stated rate is 10% and effective rate is 7%. Semi- Cash Interest Premium on Premium on Carrying annual (Credit) (Debit) Bonds Payable Bonds Payable Value Period (Debit) Balance 6,336 121,336 1 5,750 4,247 1,503 4,833 119,833 1,667 4 1,667 115,000 The discount or premium on bonds payable is recorded in a separate account whose balance is combined with bonds payable on the financial statement. Since the normal balance for a discount is a debit, it will be deducted from the value of the bonds payable. Alternatively, a premium's normal balance is a credit and will be added to the bonds payable. 1. Assume that 8% bonds with a face value of $100,000, due on December 31, 2030, were issued on December 31, 2010. Click on each selling price to see how the selling price affects the journal entry and the balance sheet presentation on the issue date. Selling Price : $90,000 $100,000 $110,000 2. York Inc. issued bonds on January 1, 2012, that had a two year maturity. The bonds had a face value of $115,000 and a contract rate of interest of 10%, which is paid semiannually on June 30 and December 31. а. Assume that the bond's market rate of interest is 14%, and its current selling price is $107,210. The selling price of the bond is - Select your answer- + the face value of the bonds, which means that these bonds were issued at - Select your answer - When the bond is recorded in the journal, - Select your answer - + should be - Select your answer - + for $ 7790 . The - Select your answer - + will be amortized over the life of the bonds. b. Assume that the bond's market rate of interest is 7%, and its current selling price is $121,336. What entry is recorded with the bond issuance? - Select your answer - Interest Expense and Amortization The bond pays interest based on the terms of the bond and the issuer records interest expense based on the actual interest expense when the discount or premium is factored into the amount received with the issue. The discount or premium is amortized over the life of the bond using either the straight-line method or the effective interest rate method. 1. When a discount is amortized, the amortization will be recorded with a - Select your answer - + to - Select your answer - When a premium is amortized, the amortization will be recorded with a - Select your answer - to - Select your answer - 2. Bonds and amortization of premiums and discounts are a difficult topic to master, so we will start with the straight-line method. a. Fill in the amortization table for each scenario using the straight-line method. Roll over the headings for help with the calculations. Remember, the straight line method amortizes the discount or premium by the same amount each period. Enter all amounts as positive numbers. If required, round amount for the amortized premium/discount to the nearest dollar. (Note: Due to rounding issues, some amounts have been provided for you in the tables.) Semi- Cash Interest Discount on Discount on Carrying annual Payment Expense Bonds Payable Bonds Payable Value Period (Credit) (Debit) (Credit) Balance 7,790 107,210 1 5,750 7,698 1,948 5,842 109,158 3 1,948 4 115,000 Semi- Cash Interest Premium on Premium on Carrying annual Payment Expense Bonds Payable Bonds Payable Value Period (Credit) (Debit) (Debit) Balance 6,336 121,336 1 5,750 4,166 1,584 4,752 119,752 1,584 4 115,000 2. 3. b. Fill in the amortization table for each scenario using the effective interest rate method. Roll over the headings for help with the calculations. Enter all amounts as positive numbers. If required, in your computations round the interest expense to the nearest dollar. (Note: Due to rounding issues, some amounts have been provided for you in the tables.) Assume the annual stated rate is 10% and effective rate is 14%. Semi- Cash Interest Discount on Discount on Carrying annual (Credit) (Debit) Bonds Payable Bonds Payable Value Period (Debit) Balance 7,790 107,210 1 5,750 7,505 1,755 6,035 108,965 2,148 4 2,150 115,000 Assume the stated rate is 10% and effective rate is 7%. Semi- Cash Interest Premium on Premium on Carrying annual (Credit) (Debit) Bonds Payable Bonds Payable Value Period (Debit) Balance 6,336 121,336 1 5,750 4,247 1,503 4,833 119,833 1,667 4 1,667 115,000
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Related Book For
Financial Accounting An Integrated Statements Approach
ISBN: 978-0324312119
2nd Edition
Authors: Jonathan E. Duchac, James M. Reeve, Carl S. Warren
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