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Chapter 14: Q5BE (page 753)

Devers Corporation issued $400,000 of 6% bonds on May 1, 2017. The bonds were dated January 1, 2017, and mature January 1, 2020, with interest payable July 1 and January 1. The bonds were issued at face value plus accrued interest. Prepare Devers鈥檚 journal entries for (a) the May 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.

Short Answer

Expert verified

The total for both the debit and credit sides is $432,000.

Step by step solution

01

Meaning of Face Value:

The amount of money the bond's issuer pays per bond to the bondholder at the maturity date is known as face value.It is generally denominated in the denomination of a hundred.

02

Journal Entries

Journal Entries

Date

No.

Accounts and Explanation

Debit

Credit

May 1, 2017

(a)

Cash

$408,000

Bonds Payable

$400,000

Interest Expenses

$8,000

July 1, 2017

(b)

Interest expenses

$12,000

Cash

$12,000

December 31, 2017

(c)

Interest expenses

$12,000

Interest Payable

$12,000

Working:

Interest expenses on May 1, 2017 =($400,000 x 6% x 4/12) = $8,000

Interest expenses paid cash on July 1, 2017 = ($400,000 x 6% x 1/12)= $12,000

Interest payable on December 31, 2017 = ($400,000 x 6% x 1/12) = $12,000

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Most popular questions from this chapter

What are some forms of off-balance-sheet financing?

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.

Question: Under IFRS, bonds issuance costs, including the printing costs and legal fees associated with the issuance, should be:

  1. expensed in the period when the debt is issued.
  2. recorded as a reduction in the carrying value of bonds payable.
  3. accumulated in a deferred charge account and amortized over the life of the bonds.

d.reported as an expense in the period the bonds mature or are redeemed.

Question: Under what circumstances would a transaction be recorded as a troubled-debt restructuring by only one of the two parties to the transaction?

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.)
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