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Chapter 12: 3RQ (page 654)
What is a mortgage payable?
Long-term liability is a liability that is due in more than one yaer.
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Bond prices depend on the market rate of interest, stated rate ofinterest,and time.
Requirements
1. Compute the price of the following 8% bonds of Country Telecom.
a. \(100,000 issued at 75.25
b. \)100,000 issued at 103.50
c. \(100,000 issued at 94.50
d. \)100,000 issued at 103.25
2. Which bond will Country Telecom have to pay the most to retire at maturity?Explain your answer.
Analyzing, journalizing, and reporting bond transactions
Johnny鈥檚 Hamburgers issued 8%, 10-year bonds payable at 85 on December 31, 2018.
At December 31, 2020, Johnny reported the bonds payable as follows:
Long-term Liabilities:
Bonds Payable \( 300,000
Less: Discount on Bonds Payable (36,000) \) 264,000
Johnny pays semiannual interest each June 30 and December 31.
Requirements
1.Answer the following questions about Johnny鈥檚 bonds payable:
a.What is the maturity value of the bonds?
b.What is the carrying amount of the bonds at December 31, 2020?
c.What is the semiannual cash interest payment on the bonds?
d.How much interest expense should the company record each year?
2. Record the June 30, 2020, semiannual interest payment and amortization of discount.
Determining bond prices and interest expense
Jones Company is planning to issue $490,000 of 9%, five-year bonds payable to
borrow for a major expansion. The owner, Shane Jones, asks your advice on some
related matters.
Requirements
1. Answer the following questions:
a. At what type of bond price Jones Company will have total interest expense
equal to the cash interest payments?
b. Under which type of bond price will Jones Company鈥檚 total interest expense be
greater than the cash interest payments?
c. If the market interest rate is 12%, what type of bond price can Jones Company
expect for the bonds?
2. Compute the price of the bonds if the bonds are issued at 89.
3. How much will Jones Company pay in interest each year? How much will Jones
Company鈥檚 interest expense be for the first year?
Journalizing bond issuance and interest payments
On January 1, 2018, Roberts Unlimited issues 8%, 20-year bonds payable with a
face value of $240,000. The bonds are issued at 104 and pay interest on June 30 and
December 31.
Requirements
1. Journalize the issuance of the bonds on January 1, 2018.
2. Journalize the semiannual interest payment and amortization of bond premium on
June 30, 2018.
3. Journalize the semiannual interest payment and amortization of bond premium on
December 31, 2018.
4. Journalize the retirement of the bond at maturity, assuming the last interest payment
has already been recorded. (Give the date).
When does a discount on bonds payable occur?
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