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Chapter 14: Q13BE (page 754)

Qurestion: Shlee Corporation issued a 4-year, \(60,000, zero-interest-bearing note to Garcia Company on January 1, 2017, and received cash of \)60,000. In addition, Shlee agreed to sell merchandise to Garcia at an amount less than regular selling price over the 4-year period. The market rate of interest for similar notes is 12%. Prepare Shlee Corporation鈥檚 January 1 journal entry

Short Answer

Expert verified

Answer

Discount on note payable is $21,869

Step by step solution

01

Meaning of Journal entry

A journal entry is a record of financial transactions kept in the books of accounts of an organization. There are debit and credit columns in addition to each transaction.

02

Preparing Journal entry

Date

Particulars

Debit ($)

Credit ($)

Cash

60,000

Discount on notes payable

21,869

Note payable

60,000

Unearned sales revenue

21,869

Working notes:

Calculation of discount on notes payable:

Presentvalueofnote=Facevalueofnote脳PVF@12%for4thperiod= $ 60,000脳0.635518= $ 38,131Discountonnotepayable=Facevalueofnote-Presentvalueofnote=$60,000-$38,131=$21,869

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Most popular questions from this chapter

(b) What type of concessions might a creditor grant the debtor in a troubled-debt situation?

In each of the following independent cases, the company closes its books on December 31.

1. Sanford Co. sells \(500,000 of 10% bonds on March 1, 2017. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2020. The bonds yield 12%. Give entries through December 31, 2018.

2. Titania Co. sells \)400,000 of 12% bonds on June 1, 2017. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2021. The bonds yield 10%. On October 1, 2018, Titania buys back \(120,000 worth of bonds for \)126,000 (includes accrued interest). Give entries through December 1, 2019.

Instructions

For the two cases prepare all of the relevant journal entries from the time of sale until the date indicated. Use the effective-interest method for discount and premium amortization (construct amortization tables where applicable). Amortize premium or discount on interest dates and at year-end. (Assume that no reversing entries were made.)

When is the stated interest rate of a debt instrument presumed to be fair?

(Issuance of Bonds between Interest Dates, Straight-Line, Redemption) Presented below are selected transactions on the books of Simonson Corporation.

May 1, 2017 Bonds payable with a par value of \(900,000, which are dated January 1, 2017, are sold at 106 plus accrued interest. They are coupon bonds, bear interest at 12% (payable annually at January 1), and mature January 1, 2027. (Use interest expense account for accrued interest.)

Dec. 31 Adjusting entries are made to record the accrued interest on the bonds, and the amortization of the proper amount of premium. (Use straight-line amortization.)

Jan. 1, 2018 Interest on the bonds is paid.

April 1 Bonds with par value of \)360,000 are called at 102 plus accrued interest, and redeemed. (Bond premium is to be amortized only at the end of each year.)

Dec. 31 Adjusting entries are made to record the accrued interest on the bonds, and the proper amount of premium amortized.

Instructions

(Round to two decimal places.)

Prepare journal entries for the transactions above.

BE14-2 (L01) The Colson Company issued $300,000 of 10% bonds on January 1, 2017. The bonds are due January 1, 2022, with interest payable each July 1 and January 1. The bonds are issued at face value. Prepare Colson鈥檚 journal entries for (a) the January issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.
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