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Chapter 14: Q7BE (page 753)
Assume the bonds in BE14-6 were issued for $644,636 and the effective-interest rate is 6%. Prepare the company鈥檚 journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.
The total for both the debit and credit sides is $686,636.
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E14-1 (L01) (Classification of Liabilities) Presented below are various account balances of K.D. Lang Inc.
(a) Unamortized premium on bonds payable, of which \(3,000 will be amortized during the next year.
(b) Bank loans payable of a winery, due March 10, 2021. (The product requires aging for 5 years before sale.)
(c) Serial bonds payable, \)1,000,000, of which \(200,000 are due each July 31.
(d) Amounts withheld from employees鈥� wages for income taxes.
(e) Notes payable due January 15, 2020.
(f) Credit balances in customers鈥� accounts arising from returns and allowances after collection in full of account.
(g) Bonds payable of \)2,000,000 maturing June 30, 2018.
(h) Overdraft of $1,000 in a bank account. (No other balances are carried at this bank.)
(i) Deposits made by customers who have ordered goods.
Instructions
Indicate whether each of the items above should be classified on December 31, 2017, as a current liability, a long-term liability, or under some other classification. Consider each one independently from all others; that is, do not assume that all of them relate to one particular business. If the classification of some of the items is doubtful, explain why in each case.
Celine Dion company issued $600,000 of 10%, 20- year bonds on January 1, 2017, at 102. Interest is payable semiannually on July 1 and January 1. Dion company uses the straight-line method of amortization for bond premium or discount.
Instructions:
Prepare the journal entries to record the following.
Distinguish between the following values relative to bonds payable:
(a) Maturity value. (c) Market (fair) value.
(b) Face value. (d) Par value.
The following amortization and interest schedule reflects the issuance of 10-year bonds by Capulet Corporation on January 1, 2011, and the subsequent interest payments and charges. The company鈥檚 year-end is December 31, and financial statements are prepared once yearly.
| Amortization Schedule | ||||
Year | Cash | Interest | Amount unamortized | Carrying value |
1/1/2011 | \(5,651 | \)94,349 | ||
2011 | \(11,000 | \)11,322 | 5,329 | 94,671 |
2012 | 11,000 | 11,361 | 4,968 | 95,032 |
2013 | 11,000 | 11,404 | 4,564 | 95,436 |
2014 | 11,000 | 11,452 | 4,112 | 95,888 |
2015 | 11,000 | 11,507 | 3,605 | 95,395 |
2016 | 11,000 | 11,567 | 3,038 | 96,962 |
2017 | 11,000 | 11,635 | 2,403 | 97,597 |
2018 | 11,000 | 11,712 | 1,691 | 98,309 |
2019 | 11,000 | 11,797 | 894 | 99,106 |
2020 | 11,000 | 11,894 | 100,000 | |
Instructions
(a) Indicate whether the bonds were issued at a premium or a discount and how you can determine this fact from the schedule.
(b) Indicate whether the amortization schedule is based on the straight-line method or the effective-interest method, and how you can determine which method is used.
(c) Determine the stated interest rate and the effective-interest rate.
(d) On the basis of the schedule above, prepare the journal entry to record the issuance of the bonds on January 1, 2011.
(e) On the basis of the schedule above, prepare the journal entry or entries to reflect the bond transactions and accruals for 2011. (Interest is paid on January 1.)
(f) On the basis of the schedule above, prepare the journal entry or entries to reflect the bond transactions and accruals for 2018. Capulet Corporation does not use reversing entries.
(Entries for Redemption and Issuance of Bonds) Matt Perry, Inc. had outstanding \(6,000,000 of 11% bonds (interest payable July 31 and January 31) due in 10 years. On July 1, it issued \)9,000,000 of 10%, 15-year bonds (interest payable July 1 and January 1) at 98. A portion of the proceeds was used to call the 11% bonds (with unamortized discount of $120,000) at 102 on August 1.
Instructions
Prepare the journal entries necessary to record issue of the new bonds and refunding of the bonds.
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