P10-8A Prepare journal entries to record issuance of bonds, interest, straight-line amortization, and balance sheet presentation
and balance sheet presentation
Fong Corporation sold $2,000,000, 7%, 5 year bonds on January 1, 2017. The bonds were dated January 1, 2017, and pay interest
on January 1. The company uses straight-line amortization on bond premiums or discounts.
Instructions
(a) Prepare all necessary journal entries to record the issuance of the bonds and bond interest expense for 2017,
assuming the bond sold at 102.
(b)
Prepare journal entries as in part (a) assuming the bonds sold at 97.
(c ) Show the balance sheet presentation for the bond issue at December 31, 2017, using (1) the 102 selling price, and
then (2) the 97 selling price
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
(a) Jan 1 Account Value
Account Value
Account Value
Dec 31 Account Value
Account Value
Account Value
(b) Jan 1 Account Value
Account Value
Account Value
Dec 31 Account Value
Account Value
Account Value
(c ) Premium
Current Liabilities
Interest Payable Value
Long-term Liabilities
Bonds payable, due 2022 Value
Add: Premium on bonds payable Value Value
Discount
Current Liabilities
Interest Payable Value
Long-term Liabilities
Bonds payable, due 2022 Value
Less: Discount on bonds payable Value Value
After you have completed P10-8A, consider the additional question.
1.
Assume that bond sold at 101. Show the impact of this change on the journal entries
and balance sheet presentation.
2. Assume that the bond sold at 98.5. Show the impact of this change on the journal entries
and balance sheet presentation.
P10-8A Solution
(a) Jan 1 2,040,000
2,000,000
40,000
(c ) Premium
Current Liabilities
Interest Payable $140,000
Long-term Liabilities
Bonds payable, due 2022 $2,000,000
Cash ($2,000,000 x 102%)
Bonds Payable
Premium on Bonds Payable
Discount on Bonds Payable
Interest Expense
Premium on Bonds Payable
Interest Payable
Cash ($2,000,000 x 97%)
Discount on Bonds Payable
Bonds Payable
Interest Expense
Interest Payable
Bonds Payable
Premium on Bonds Payable
Interest Expense
Premium on Bonds Payable
Cash ($2,000,000 x 101%)
Cash ($2,000,000 x 98.5%)
Discount on Bonds Payable
Discount on Bonds Payable
Bonds Payable
Interest Expense
Interest Payable
P10-10A Prepare journal entries to record issuance of bonds, payment of interest, and amortization of bond discount
using effective interest method
On January 1, 2017, Latche Corporation issued $1,800,000 face value, 5%, 10 year bonds at $1,667,518. This price resulted in
an effective interest rate of 6% on the bonds. Lock uses the effective-interest method to amortize bond premium or discount.
The bond pay annual interest January 1.
Instructions
(Round all computations to the nearest dollar.)
(a) Prepare the journal entry to record the issuance of the bonds on January 1, 2017.
(b) Prepare an amortization table through December 31, 2019 (three interest periods) for this bond issue.
(c ) Prepare the journal entry to record the accrual of interest and the amortization of the discount on December 31, 2017.
(d) Prepare the journal entry to record the payment of interest on January 1, 2018.
(e ) Prepare the journal entry to record the accrual of interest and the amortization of the discount on December 31, 2018.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
2017
(a) Jan 1 Account Value
Account Value
Account Value
(b)
(A) (B) (c ) (D) (E )
Interest Discount Unamortized Bond
Annual Interest Interest to Expense to Amortization Discount Carrying Value
Periods Be Paid Be Recorded (B) – (A) (D) – (C ) ($1,800,000 – D)
Issue date Value $1,667,518
1 $90,000 ? ? ? ?
2 90,000 ? ? ? ?
3 90,000 ? ? ? ?
2018
(c ) Dec 31 Account Value
Account Value
Account Value
(d) 2018
Jan 1 Account Value
Account Value
(e ) 2018
Dec 31 Account Value
Account Value
Account Value
After you have completed P10-10A, consider the additional question.
1. Assume that face interest rate changed to 8% and the bond sold for $2,092,057 when market rate was 6%.
LACHTE CORP.
Bond Discount Amortization
Effective-Interest-Method – Annual Interest Payments
5% Bonds issued at 6%
Show the impact on the journal entries and on the amortization schedule.
P10-10A Solution
2017
(a) Jan 1 1,667,518
(b)
(A) (B) (c ) (D) (E )
Interest Discount
Unamortized
Interest Payable
Interest Payable ($1,800,000 x 5%)
Cash
Interest Expense ($1,677,569 x 6%)
Bond
Annual Interest Interest to Expense to Amortization Discount Carrying Value
Periods Be Paid Be Recorded (B) – (A) (D) – (C ) ($1,800,000 – D)
Issue date $132,482 $1,667,518
1$90,000 $100,051 $10,051 122,431 1,677,569
2018
(c ) Dec 31 100,051
LATCHE CORP.
Bond Discount Amortization
Effective-Interest-Method – Annual Interest Payments
5% Bonds issued at 6%
Cash
Interest Expense ($1,667,518 X 6%)
Bonds Payable
Cash
P10-10A Solution to additional question
1. Assume that face interest rate changed to 8% and the bond sold for $2,092,057 when market rate was 6%.
Show the impact on the journal entries and on the amortization schedule.
2017
(a) Jan 1 2,092,057
(b)
(A) (B) (c ) (D) (E )
Interest Premium Unamortized Bond
Annual Interest Interest to Expense to Amortization Premium Carrying Value
Periods Be Paid Be Recorded (B) – (A) (D) – (C ) ($1,800,000 + D)
Issue date $292,057 $2,092,057
2018
8% Bonds issued at 6%
Effective-Interest-Method – Annual Interest Payments
Cash
LATCHE CORP.
Bond Premium Amortization
P10-8B Prepare journal entries to record issuance of bonds, interest, straight-line amortization, and balance sheet presentation
and balance sheet presentation
Holmes Corporation sold $2,200,000, 8%, 5-year bonds on January 1, 2014. The bonds were dated January 1, 2014, and pay interest
on January 1. Holmes Corporation uses the straight-line method to amortize bond premiums or discounts.
Instructions
(a) Prepare all necessary journal entries to record the issuance of the bonds and bond interest expense for 2014,
assuming the bond sold at 102.
(b) Prepare journal entries as in part (a) assuming g the bonds sold at 98.
(c ) Show the balance sheet presentation for the bond issue at December 31, 2014, using (1) the 102 selling price, and
then (2) the 98 selling price
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
(a) Jan 1 Value
Value
Value
Dec 31 Value
Value
Value
(b) Jan 1 Value
Value
Value
Dec 31 Value
Value
Value
(c ) Premium
Current Liabilities
Interest Payable Value
Long-term Liabilities
Bonds payable, due 2019 Value
Add: Premium on bonds payable Value Value
Discount
Current Liabilities
Interest Payable Value
Long-term Liabilities
Bonds payable, due 2019 Value
Less: Discount on bonds payable Value Value
After you have completed P10-8B, consider the additional question.
1. Assume that bond sold at 103. Show the impact of this change on the journal entries
Account
Account
Account
Account
Account
Account
Account
Account
Account
Account
Account
Account
and balance sheet presentation.
2. Assume that the bond sold at 99. Show the impact of this change on the journal entries
and balance sheet presentation.
Interest Payable
Bonds Payable
Interest Expense
Discount on Bonds Payable
P10-8B Solution
(a) Jan 1 2,244,000
44,000
(b) Jan 1 2,156,000
44,000
(c ) Premium
Current Liabilities
Interest Payable $176,000
Long-term Liabilities
Cash ($2,200,000 x 102%)
Premium on Bonds Payable
Cash ($2,200,000 x 98%)
Discount on Bonds Payable
Bonds Payable
Interest Expense
Premium on Bonds Payable
Interest Payable
Interest Payable
Bonds Payable
Interest Expense
Discount on Bonds Payable
Premium on Bonds Payable
Bonds Payable
Interest Expense
Premium on Bonds Payable
1. Assume that bond sold at 103. Show the impact of this change on the journal entries
and balance sheet presentation.
Jan 1 2,266,000
2. Assume that the bond sold at 99. Show the impact of this change on the journal entries
and balance sheet presentation.
Jan 1 2,178,000
22,000
Cash ($2,200,000 x 103%)
Cash ($2,200,000 x 99%)
Discount on Bonds Payable