nkt.2 The Parent company issued $500,000 face value 5% 15-year bonds to an unaffiliated party for $515,000 on January 1st 2016. December 31, 2018 the Subsidiary company paid $485,000 to purchase all of the outstanding parent company’s bonds from 3rd parties. • Prepare the entries for the parent and the sub related to the bond transactions (to record the initial issuance, annual interest and the effective retirement)
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- Transfer between Categories On December 31, 2018, Leslie Company held an investment in bonds of Kaufmann Company which it categorized as being held to maturity. At that time, the 8%, 100,000 face value bonds had a carrying value of 107,023.56 and were being amortized using the effective interest method based on a market rate of 7%. Interest on these bonds is paid annually each December 31. On December 31, 2019, after recording the interest earned, Leslie decided to reclassify the Kaufmann bonds to its available-for-sale category in anticipation of a major restructuring. At that time, the ending quoted market price for the bonds was 105,000. Required: Prepare the journal entries on December 31, 2019, to record the interest earned and the reclassification.Wilbury Corporation issued 1 million of 13.5% bonds for 985,071.68. The bonds are dated and issued October 1, 2019, are due September 30, 2020, and pay interest semiannually on March 31 and September 30. Assume an effective yield rate of 14%. Required: 1. Prepare a bond interest expense and discount amortization schedule using the straight-line method. 2. Prepare a bond interest expense and discount amortization schedule using the effective interest method. 3. Prepare adjusting entries for the end of the fiscal year December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. If income before interest and income taxes of 30% in 2020 is 500,000, compute net income under each alternative. 5. Assume the company retired the bonds on June 30, 2020, at 98 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight line method of amortization b. effective interest method of amortization 6. Compute the companys times interest earned (pretax operating income divided by interest expense) for 2020 under each alternative.Refer to the information in RE 13-3. Assume that on December 31, 2019, Wolfpack received interest on the Todd Corporation bonds. Wolfpack uses the straight-line method to amortize premiums and discounts. Prepare the December 31 journal entry to record the receipt of the interest. On July 1, 2019, Wolfpack Corporation purchases securities which it intends to buy and sell frequently. These securities consisted of todd Corporation 10%, 5-year bonds with a face value of 20,000 which were purchased for 18,500. Prepare the july 1 journal entry to record the purchase of these trading securities.
- Aggies Inc. issued bonds with a $500,000 face value, 10% interest rate, and a 4-year term on July 1, 2018, and received $540,000. Interest is payable semi-annually. The premium is amortized using the straight-line method. Prepare journal entries for the following transactions. A. July 1, 2018: entry to record issuing the bonds B. Dec. 31, 2018: entry to record payment of interest to bondholders C. Dec. 31, 2018: entry to record amortization of premiumOn January 1, 2019, Brewster Company issued 2,000 of its 5-year, 1,000 face value, 11% bonds dated January 1 at an effective annual interest rate (yield) of 9%. Brewster uses the effective interest method of amortization. On December 31, 2023, Brewster extinguished the 2,000 bonds early through acquisition in the open market for 1,980,000. On July 1, 2022, Brewster issued 5,000 of its 6-year, 1,000 face value, 10% convertible bonds dated July 1 at an effective annual interest rate (yield) of 12%. The bonds are convertible at the option of the investor into Brewsters common stock at a ratio of 10 shares of common stock for each bond. Brewster uses the effective interest method of amortization. On July 1, 2023, an investor in Brewsters convertible bonds tendered 1,500 bonds for conversion into 15,000 shares of Brewsters common stock, which had a market value of 105 per share at the date of the conversion. Required: 1. Using the information about Brewster, answer the following questions: a. Were the 11% bonds issued at par, at a discount, or at a premium? Why? b. Is the amount of interest expense for the 11% bonds using the effective interest method of amortization higher in the first or second year of the life of the bond issue? Why? 2. Using the information about Brewster, explain the following: a. How is a gain or loss on early extinguishment of debt determined? Does the early extinguishment of the 11% bonds result in a gain or loss? Why? b. How does Brewster report the early extinguishment of the 11% bonds on the 2023 income statement? 3. Based on the information provided about Brewster, answer the following questions: a. Does recording the conversion of the 10% convertible bonds into common stock under the book value method affect net income? What is the rationale for the book value method? b. Does recording the conversion of the 10% convertible bonds into common stock under the market value method affect net income? What is the rationale for the market value method?Bats Corporation issued 800,000 of 12% face value bonds for 851,705.70. The bonds were dated and issued on April 1, 2019, are due March 31, 2023, and pay interest semiannually on September 30 and March 31. Bats sold the bonds to yield 10%. Required: 1. Prepare a bond interest expense and premium amortization schedule using the straight-line method. 2. Prepare a bond interest expense and premium amortization schedule using the effective interest method. 3. Prepare any adjusting entries for the end of the fiscal year, December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. Assume the company retires the bonds on June 30, 2020, at 103 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight-line method of amortization b. effective interest method of amortization
- A Co. is authorized to issue P5,000,000 of 6%, 10 year bonds dated July 1, 2021 with interest payments on June 30 and December 31. When the bonds are issued on November 1, 2021, the entity received cash of P5,150,000 including accrued interest. What amount was recorded as discount or premium on bonds payable? a. 150,000 bond discount b. 50,000 bond premium c. no bond premium or discount d. 150,000 bond premiumAssume bonds payable are amortized using the straight-line amortization method unless stated otherwise. Journalizing bond transactions Anderson Company issued $70,000 of 10-year, 9% bonds payable on January 1, 2018. Anderson Company pays interest each January 1 and July 1 and amortizes discount or premium by the straight-line amortization method. The company can issue its bonds payable under various conditions. Requirements Journalize Anderson Company’s issuance of the bonds and first semiannual interest payment assuming the bonds were issued at face value. Explanations are not required. Journalize Anderson Company’s issuance of the bonds and first semiannual interest payment assuming the bonds were issued at 92. Explanations are not required. Journalize Anderson Company’s issuance of the bonds and first semiannual interest payment assuming the bonds were issued at 103. Explanations are not required. Which bond price results in the most interest expense for Anderson Company? Explain…If the company issued RO 100,000 , 5% interest, 10-year bonds at 98 on January 1, 2021, which of the following is the correct accounting entry on the date of issuance? a. the company will record premium on bonds payable, RO 200 b. the company will record discount on bonds payable, RO 2,000 c. the company will record premium on bonds payable, RO 2,000 d. the company will record discount on bonds payable, RO 200
- Assume bonds payable are amortized using the straight-line amortization method unless stated otherwise. Journalizing bond transactions Owen Company issued a $110,000, 11%, 10-year bond payable at 94 on January 1, 2018. Interest is paid semiannually on January 1 and July 1. Requirements 1. Journalize the issuance of the bond payable on January 1, 2018. 2. Journalize the payment of semiannual interest and amortization of the bond discount or premium on July 1, 2018.Problem 1: On January 1, 2011, an entity issues bonds with face amount of P5,000,00 for P5,733,129. The bonds mature on December 31, 2013 and pay annual interest of 14%, The effective interest rate is 8%. a. Prepare the amortization table for the bonds and the required journal entries. b. Prepare all the journal entries during the term of the bonds. Problem 2: On January 1, 2011, an entity issues bonds with face amount of P8,000,00 for P8,600,000. The bonds mature on December 31, 2014 and pay annual interest of 11%, The effective interest rate is 9%. The entity incurs transactions cost of P81,645. Required: a. Compute for the initial valuation of the bonds. b. Compute for net discount or premium from the initial recognition C. Are the periodic interest payments greater than or less than the periodic interest expenses? d. Prepare all the journal entries during the term of the bonds.2. Al-Teeb Company issued OR 40,000, 3.5%, 15-year bond payable at 104 on January 1, 2018 Required: a. Journalize the issuance of the bond payable on January 1, 2018 b. Journalize the payment of semiannually interest and amortization of the bond discount or premium on July 1, 2018.