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Chapter 14: Q10BE (page 754)

Coldwell, Inc. issued a \(100,000. 4-years, 10% note at face value to Flint Hills Bank on January 1, 2017, and received \)100,000 cash. The note requires annual interest payments each December 31. Prepare Coldwell鈥檚 journal entries to record (a) the issuance of the note and (b) the December 31 interest payment.

Short Answer

Expert verified

The total for both debit and creditsides is $110,000.

Step by step solution

01

Meaning of the Journal Entry

The journal entry is the act ofkeeping a record of any transactions and events, either economic or non-economic. Therecording of journal entry includes Serial number or transaction number, Date, Accounts titles and explanations, debit and credit, and narrations.

02

Journal Entries

Journal Entries

Date

Accounts Titles and explanations

Debit

Credit

Jan 1, 2017

Cash

$100,000

Notes payable

$100,000

Dec31,2017

Interest Expenses

$10,000

Cash

$10,000

Working notes:

Notes payable = $100,000 (Given)

Interest expense = ($ 100,000 脳 10%) = $ 10,000

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Most popular questions from this chapter

(Issuance and Redemption of Bonds; Income Statement Presentation) Holiday Company issued its 9%, 25-year mortgage bonds in the principal amount of \(3,000,000 on January 2, 2003, at a discount of \)150,000, which it proceeded to amortize by charges to expense over the life of the issue on a straight-line basis. The indenture securing the issue provided that the bonds could be called for redemption in total but not in part at any time before maturity at 104% of the principal amount, but it did not provide for any sinking fund.

On December 18, 2017, the company issued its 11%, 20-year debenture bonds in the principal amount of $4,000,000 at 102, and the proceeds were used to redeem the 9%, 25-year mortgage bonds on January 2, 2018. The indenture securing the new issue did not provide for any sinking fund or for redemption before maturity.

Instructions

(a) Prepare journal entries to record the issuance of the 11% bonds and the redemption of the 9% bonds.

(b) Indicate the income statement treatment of the gain or loss from redemption and the note disclosure required.

(Equity Securities Entries) On December 21, 2017, Bucky Katt Company provided you with the following information

regarding its equity investments.

December 31, 2017

Investments Cost Fair Value Unrealized Gain (Loss)

Clemson Corp. stock \(20,000 \)19,000 \((1,000)

Colorado Co. stock 10,000 9,000 (1,000)

Buffaloes Co. stock 20,000 20,600 600

Total of portfolio \)50,000 \(48,600 (1,400)

Previous fair value adjustment balance 鈥�0鈥�

Fair value adjustment鈥擟r. \)(1,400)

During 2018, Colorado Co. stock was sold for \(9,400. The fair value of the stock on December 31, 2018, was Clemson Corp.

stock鈥擻)19,100; Buffaloes Co. stock鈥�$20,500. None of the equity investments result in significant influence.

Instructions

(a) Prepare the adjusting journal entry needed on December 31, 2017.

(b) Prepare the journal entry to record the sale of the Colorado Co. stock during 2018.

(c) Prepare the adjusting journal entry needed on December 31, 2018.

On April 1, 2017, Seminole Company sold 15,000 of its 11%, 15-year, \(1,000 face value bonds at 97. Interest payment dates are April 1 and October 1, and the company uses the straight-line method of bond discount amortization. On March 1, 2018, Seminole took advantage of favorable prices of its stock to extinguish 6,000 of the bonds by issuing 200,000 shares of its \)10 par value common stock. At this time, the accrued interest was paid in cash. The company鈥檚 stock was selling for $31 per share on March 1, 2018.

Instructions

Prepare the journal entries needed on the books of Seminole Company to record the following.

(a) April 1, 2017: issuance of the bonds.

(b) October 1, 2017: payment of semi-annual interest.

(c) December 31, 2017: accrual of interest expense.

(d) March 1, 2018: extinguishment of 6,000 bonds. (No reversing entries made.)

How should discounts on bonds payable be reported on the financial statements? Premium on bonds payable?

Describe the two criteria for determining the valuation of financial assets.
See all solutions

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