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P12-34A Analyzing and journalizing bond transactions
Learning Objectives 2, 3, 4
3. June 30, 2018, Interest Expense $25,200
On January 1, 2018, Nurses Credit Union (NCU) issued 8%, 20-year bonds payable with face
value of $600,000. The bonds pay interest on June 30 and December 31.
Requirements
1. If the market interest rate is 7% when NCU issues its bonds, will the bonds be priced at face
value, at a premium, or at a discount? Explain.
2. If the market interest rate is 9% when NCU issues its bonds, will the bonds be priced at face
value, at a premium, or at a discount? Explain.
3. The issue price of the bonds is 92. Journalize the following bond transactions:
a. Issuance of the bonds on January 1, 2018.
b. Payment of interest and amortization on June 30, 2018.
c. Payment of interest and amortization on December 31, 2018.
d. Retirement of the bond at maturity on December 31, 2037, assuming the last interest
payment has already been recorded.
SOLUTION
Requirement 1
P12-34A, cont.
Requirement 3
P12-35A Analyzing and journalizing bond transactions
Learning Objectives 2, 3, 4
June 30, 2018, Interest Expense $37,750
On January 1, 2018, Educators Credit Union (ECU) issued 8%, 20-year bonds payable with face
value of $1,000,000. These bonds pay interest on June 30 and December 31. The issue price of
the bonds is 109.
Journalize the following bond transactions:
a. Issuance of the bonds on January 1, 2018.
b. Payment of interest and amortization on June 30, 2018.
c. Payment of interest and amortization on December 31, 2018.
d. Retirement of the bond at maturity on December 31, 2037, assuming the last interest payment
has already been recorded.
SOLUTION
P12-36A Reporting liabilities on the balance sheet and computing debt to equity ratio
Learning Objectives 5, 6
1. Total Liabilities $276,200
The accounting records of Pack Leader Wireless include the following as of December 31, 2018:
Accounts Payable $
77,000
Salaries Payable $ 7,500
Mortgages Payable
(long-term)
73,000 Bonds Payable (current
portion)
25,000
Interest Payable 18,000 Premium on Bonds
Payable
10,000
Bonds Payable (long-term) 63,000 Unearned Revenue
(short-term)
2,700
Total Stockholders’ Equity 140,000
Requirements
1. Report these liabilities on the Pack Leader Wireless balance sheet, including headings and
totals for current liabilities and long-term liabilities.
2. Compute Pack Leader Wireless’s debt to equity ratio at December 31, 2018.
P12-36A, cont.
SOLUTION
Requirement 1
Requirement 2
P12AB-37A Determining the present value of bonds payable and journalizing using the
effective-interest amortization method
Learning Objectives 7, 8
Appendixes 12A, 12B
3. Jan. 1, 2018, Cash $629,634
Brad Nelson, Inc. issued $600,000 of 7%, six-year bonds payable on January 1, 2018. The
market interest rate at the date of issuance was 6%, and the bonds pay interest semiannually.
Requirements
1. How much cash did the company receive upon issuance of the bonds payable? (Round to the
nearest dollar.)
2. Prepare an amortization table for the bond using the effective-interest method, through the
first two interest payments. (Round to the nearest dollar.)
3. Journalize the issuance of the bonds on January 1, 2018, and the first and second payments of
the semiannual interest amount and amortization of the bonds on June 30, 2018, and
December 31, 2018. Explanations are not required.
SOLUTION
Requirement 1
P12AB-37A, cont.
Requirement 2
Requirement 3
P12AB-38A Determining the present value of bonds payable and journalizing using the
effective-interest amortization method
Learning Objectives 7, 8
Appendixes 12A, 12B
3. Jan. 1, 2018, Cash $214,035
Relaxation, Inc. is authorized to issue 7%, 10-year bonds payable. On January 1, 2018, when the
market interest rate is 12%, the company issues $300,000 of the bonds. The bonds pay interest
semiannually.
Requirements
1. How much cash did the company receive upon issuance of the bonds payable? (Round to the
nearest dollar.)
2. Prepare an amortization table for the bond using the effective-interest method, through the
first two interest payments. (Round to the nearest dollar.)
3. Journalize the issuance of the bonds on January 1, 2018, and the first and second payments of
the semiannual interest amount and amortization of the bonds on June 30, 2018, and
December 31, 2018. Explanations are not required.
SOLUTION
Requirement 1
P12AB-38A, cont.
Requirement 2
Requirement 3
