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Chapter 14: Q11BE (page 754)

Samson Corporation issued a 4-year, \(75,000, zero-interest-bearing note to Brown Company on January 1, 2017, and received cash of \)47,664. The implicit interest rate is 12%. Prepare Samson鈥檚 journal entries for (a) the January 1 issuance and (b) the December 31 recognition of interest.

Short Answer

Expert verified

The total for both the debit and credit sides is $80,719.68.

Step by step solution

01

Meaning of Zero-Interest Note

Notes that are issued at free of interest rate is zero-interest rate. It is issued at discounted value than the face value of the notes and payable at face value on maturity.

02

Journal Entry

Journal Entries


Date

Accounts and Explanation

Debit

Credit

January 1, 2017

Cash

$47,664

Discount on Notes Payable

$27,336

Notes Payable

$75,000

December 31, 2017

Interest Expenses

$5,719.68

Discount on Notes Payable

$5,719.68






Working:

Discount on notes payable on January 1= ($75,000-$47,664) = $27,336

Interest expenses on December 31 = ($47,664 x 12%) = $5,719.68

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Most popular questions from this chapter

Question: What is the required method of amortizing discount and premium on bonds payable? Explain the procedures.

All of the following are differences between IFRS and GAAP in accounting for liabilities except:

a) When a bond is issued at a discount, GAAP records the discount in a separate contra liability account. IFRS records the bond net of the discount.

b) Under IFRS, bond issuance costs reduce the carrying value of the debt. Under GAAP, these costs are recorded as an asset and amortized to expense over the terms of the bond.

c) GAAP, but not IFRS, uses the term 鈥渢roubled-debt restructurings.鈥�

d) GAAP, but not IFRS, uses the term 鈥減rovisions鈥� for contingent liabilities which are accrued.

Assume the same information as in E14-4, except that Celine Dion Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%

Instructions

Prepare the journal entries to record the following. (Round to the nearest dollar.)

(a) The issuance of the bonds.

(b) The payment of interest and related amortization on July 1, 2017.

(c) The accrual of interest and the related amortization on December 31, 2017.

Question: What are the general rules for measuring and recognizing gain or loss by both the debtor and the creditor in a troubled-debt restructuring involving a modification of terms?

On January 1, 2017, Aumont Company sold 12% bonds having a maturity value of \(500,000 for \)537,907.37, which provides the bondholders with a 10% yield. The bonds are dated January 1, 2017, and mature January 1, 2022, with interest payable December 31 of each year. Aumont Company allocates interest and unamortized discount or premium on the effective-interest basis.

Instructions

(Round answers to the nearest cent.)

  1. Prepare the journal entry at the date of the bond issuance.
  2. Prepare a schedule of interest expense and bond amortization for 2017鈥�2019.
  3. Prepare the journal entry to record the interest payment and the amortization for 2017.
  4. Prepare the journal entry to record the interest payment and the amortization for 2019.
See all solutions

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