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1.
CHAPTER 22
LONG-TERM BONDS
Answers will vary. Students may suggest borrowing money from family or securing a loan from a lending
institution. If the company were publicly traded, additional stock might be sold to raise capital. Depending
on the financial condition of the company, a bond issue may be feasible.
Heinz is a $10 billion global company.
A bond secured by collateral that is another company’s security.
Henry John Heinz.
The firm’s ability to pay interest payments and repay principal.
The rate of return to be earned on the funds raised compared to the bond interest rate.
Chapter Opener: Thinking Critically
Fast Facts
Managerial Implications: Thinking Critically
Discussion Questions
EXERCISE 22.1
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POST.
REF.
1 2013 1
5 5
EXERCISE 22.2
PAGE
POST.
REF.
1 2013 1
2 Oct. 1 Bond Interest Expense 15 0 0 0 00 2
EXERCISE 22.3
PAGE
POST.
REF.
1 2013 1
2 Dec. 31 Bond Interest Expense 7 5 0 0 00 2
DEBIT
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
CREDIT
GENERAL JOURNAL
DATE
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
DESCRIPTION
EXERCISE 22.4
POST.
REF.
1 2013 1
5 Issued bonds at 102 5
6 6
EXERCISE 22.5
AGE
POST.
REF.
1 2013 1
6 6
EXERCISE 22.6
AGE
POST.
REF.
1 2013 1
2 Dec. 31 Bond Interest Expense 245000 2
7 7
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PAGE
EXERCISE 22.7
POST.
REF.
1 2012 1
2 Dec. 31 Bond Sinking Fund Investment 25 0 0 0 00 2
3 Cash 25 0 0 0 00 3
4 Record 2012 contribution to sinking fund 4
5 2013 5
EXERCISE 22.8
POST.
REF.
1 2013 1
5 5
EXERCISE 22.9
POST.
REF.
1 2016 1
2 Aug. 1 8% Bonds Payable, 2023 60 0 0 0 00 2
6 Retirement of $60,000 bonds at 97 6
7 7
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PAGE
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PAGE
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PAGE
PROBLEM 22.1A
PAGE
POST.
REF.
2013
Apr. 1 Cash 20000000
6% Bonds Payable, 2033 200000 00
Issued bonds at face value
Bond Interest Expense 900000
Closed bond interest expense
2014
Jan. 1 Bond Interest Payable 300000
Bond Interest Expense 300000
Reversed adjusting entry
Apr. 1 Cash 10000000
Paid interest for six months
($300,000 × 0.06 × 6/12)
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 22.1A (continued)
PAGE
POST.
REF.
2014
Dec. 31 Bond Interest Expense 450000
Bond Interest Payable 450000
Accrued interest for three months
($300,000 × 0.06 × 3/12)
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 22.2A
PAGE
POST.
REF.
2013
Jun. 1 Cash 396 5 2 0 00
Discount on Bonds Payable 9 4 8 0 00
6% Bonds Payable, 2033 400 0 0 0 00
Paid semiannual interest
I = $400,000 × 0.06 × 6/12
1 Bond Interest Expense 1 2 0 00
Discount on Bonds Payable 1 2 0 00
Amortized discount ($9,480 ÷ 237 months) ×
3 months
Dec. 31 Bond Interest Expense 8 1 6 0 00
Discount on Bonds Payable 1 6 0 00
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 22.2A (continued)
Belmont, LLC
Partial Balance Sheet
December 31, 2013
Long Term Liabilities
6% Bonds Payable $400 0 0 0 00
2.
PROBLEM 22.3A
PAGE
POST.
REF.
2013
Apr. 1 Cash 404 8 0 0 00
Premium on Bonds Payable 4 8 0 0 00
10% Bonds Payable, 2023 400 0 0 0 00
Issued bonds at 101.2
Bond Interest Payable 10 0 0 0 00
Accrued bond interest for three months
31 Income Summary 29 6 4 0 00
Bond Interest Expense 29 6 4 0 00
Closed bond interest expense
2014
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
Carolina Motor Shops, Inc.
Partial Balance Sheet
December 31, 2013
Long Term Liabilities
Analyze: PAGE
POST.
REF.
2014
Apr. 1 Premium on Bonds Payable 1 2 0 00
Bond Interest Payable 10 0 0 0 00
DATE DESCRIPTION DEBIT CREDIT
2.
PROBLEM 22.4A
PAGE
POST.
REF.
1.
1 2013
2 Jan. 1 Cash 400 0 0 0 00
3 10% Bonds Payable, 2033 400 0 0 0 00
4 Sold bonds at 100
5
18 Retired bonds
19
20 1 Retained Earnings Appropriated for
21 Bond Retirement 400 0 0 0 00
22 Retained Earnings 400 0 0 0 00
23 Removed appropriation of retained earnings
24 for retirement of bonds
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 22.4A (continued)
2.
Investments
Bond Sinking Fund Investment $100 0 0 0 00
Stockholders’ Equity
Retained Earnings
PROBLEM 22.5A
PAGE
POST.
REF.
1 2015
2 May 1 9% Bonds Payable, 2023 500 0 0 0 00
3 Loss on Early Retirement of Bonds 2 8 0 00
Partial Balance Sheet
New Computer Technology, Inc.
December 31, 2017
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 22.1B
POST.
REF.
2013
31 Income Summary 36 0 0 0 00
Bond Interest Expense 36 0 0 0 00
Closed bond interest expense
2014
Jan. 1 Bond Interest Payable 12 0 0 0 00
Bond Interest Expense 12 0 0 0 00
Reversed adjusting entry
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PAGE
PROBLEM 22.1B (continued)
PAGE
POST.
REF.
2014
Dec. 31 Bond Interest Expense 20 0 0 0 00
Bond Interest Payable 20 0 0 0 00
Accrue interest expense for three months
($1,000,000 × 0.08 × 3/12)
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 22.2B
PAGE
POST.
REF.
1 2013
2 Jul. 1 Cash 496 7 3 3 00
3 Discount on Bonds Payable 11 6 0 0 00
10 Paid semiannual interest
11
12 1 Bond Interest Expense 2 0 0 00
13 Discount on Bonds Payable 2 0 0 00
14 Amortize discount ($11,600/116 mos) ×
15 2 mos
16
27 2014
28 Jan. 1 Discount on Bonds Payable 4 0 0 00
29 Bond Interest Payable 8333 00
30 Bond Interest Expense 873300
31 Reversed adjusting entry
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 22.2B (continued)
2.
5% Bonds Payable $500 000 00
Net Liability $489 00000
ELI Corporation
Partial Balance Sheet
December 31, 2013
PROBLEM 22.3B
PAGE
POST.
REF.
1 2013
2 Feb. 1 Cash 51500000
9 Amortize premium for six months
10
11 Aug. 1 Bond Interest Expense 2000000
12 Cash 20 0 0 0 00
13 Paid interest for six months
14
15 Dec. 31 Bond Interest Expense 16 0 4 2 00
16 Premium on Bonds Payable 6 2 5 00
17 Bond Interest Payable 1666700
18 Accrue bond interest for five months
19 ($500,000 × 0.08 × 5/12)
20
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 22.3B (continued)
2.
Long Term Liabilities
Analyze:
POST.
REF.
1 2014
2 Feb. 1 Premium on Bonds Payable 1 2 5 00
5 Cash 20 0 0 0 00
6
DATE DESCRIPTION DEBIT CREDIT
Roma Corporation
Partial Balance Sheet
December 31, 2013
PROBLEM 22.4B
PAGE
POST.
REF.
2013
Jan. 1 Cash 20000000
10% Bonds Payable, 2033 20000000
Sold bonds at 100
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
Investments
Bond Sinking Fund Investment 200 0 0 0 00
Stockholders’ Equity
Retained Earnings
PAGE
POST.
REF.
2023
Jan. 1 Bonds Payable 200 0 0 0 00
Retained Earnings 200 0 0 0 00
Remove appropriation upon payment of bonds
DATE DESCRIPTION DEBIT CREDIT
2.
Mine Research, Inc.
Partial Balance Sheet
December 31, 2022
GENERAL JOURNAL