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Chapter 12: Q7RQ (page 654)
When does a premium on bonds payable occur?
The stated interest rate is an interest that the issuer of the bonds provides.
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Determining the present value of bonds payable and journalizingusing the effective-interest amortization methodBrad Nelson, Inc. issued \(600,000 of 7%, six-year bonds payable on January 1, 2018.
The market interest rate at the date of issuance was 6%, and the bonds pay interestsemiannually.
Learning Objectives 2, 3, 4
3. June 30, 2018, InterestExpense \)25,200
Learning Objectives 2, 3, 4
June 30, 2018, Interest Expense$37,750
C H A P T E R 1 2
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 secondpayments of the semiannual interest amount and amortization of the bonds onJune 30, 2018, and December 31, 2018. Explanations are not required.
Determining future value
David is entering high school and is determined to save money for college. David feels
he can save $5,000 each year for the next four years from his part-time job. If David is
able to invest at 6%, how much will he have when he starts college?
Schmidt Company issued $100,000, 4%, 10-year bonds payable at 98 on January 1, 2018.
6. Journalize the issuance of the bonds payable on January 1, 2018.
7. Journalize the payment of semiannual interest and amortization of the bond discount or premium (using the straight-line
amortization method) on July 1, 2018.
8. Assume the bonds payable was instead issued at 106. Journalize the issuance of the bonds payable and the payment of the
first semiannual interest and amortization of the bond discount or premium.
Journalizing bond issuance and interest payments
On June 30, Parker Company issued 11%, five-year bonds payable with a face value
of $120,000. The bonds are issued at face value and pay interest on June 30 and
December 31.
Requirements
1. Journalize the issuance of the bonds on June 30.
2. Journalize the semiannual interest payment on December 31
Determining the present value of bonds payable and journalizing
using the effective-interest amortization method
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 secondpayments of the semiannual interest amount and amortization of the bonds onJune 30, 2018, and December 31, 2018. Explanations are not required.
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