Concept explainers
1.
Prepare
1.
Explanation of Solution
Bonds:
Bonds are long-term promissory notes that are issued by a company while borrowing money from investors to raise fund for financing the operations.
Prepare journal entries to record all transactions occurred during the period 2016, of Corporation D.
Date | Account titles and Explanation | Debit | Credit |
January 1, 2016 | Cash | $820,302 | |
Premium on bonds payable | $20,302 | ||
Bonds payable | $800,000 | ||
(To record issuance of bonds payable) | |||
February 28, 2016 | Interest expense (balancing figure) | $9,792 | |
Discount on bonds payable | $792 | ||
Cash | $9,000 | ||
(To record payment of interest expense) | |||
March 31, 2016 | Interest expense | $30,000 | |
Discount on convertible bonds | $2,500 | ||
Cash | $27,500 | ||
(To record payment of interest expense) | |||
May 1,2016 | Cash | $5,400 | |
Common stock warrants | $1,920 | ||
Common stock | $2,000 | ||
Additional paid in capital on common stock | $5,320 | ||
(To record detachable warrants of common stock) | |||
June 30, 2016 | Interest expense | $81,250 | |
Cash | $81,250 | ||
(To record payment of interest expense) | |||
June 30, 2016 | Interest expense | $41,015.10 | |
Premium on bonds payable | $2,984.90 | ||
Cash | $44,000 | ||
(To record payment of interest expense) | |||
September 30, 2016 | Interest expense | $30,000 | |
Discount on convertible bonds payable | $2,500 | ||
Cash | $27,500 | ||
(To record payment of interest expense) | |||
September 30, 2016 | Convertible bonds payable | $100,000 | |
Discount on convertible bonds payable | $2,500 | ||
Common stock | $30,000 | ||
Additional paid in capital - common stock | $67,500 | ||
(To record conversion of conversion of convertible bonds) | |||
November 1, 2016 | Interest expense | $6,810.98 | |
Premium on bonds payable | $522.35 | ||
Interest payable | $7,333.33 | ||
(To record payment of interest expense) | |||
November 1, 2016 | Bonds payable | $200,000 | |
Interest payable | $7,333.33 | ||
Premium on bonds payable | $3,806.92 | ||
Loss on bonds redemption | $10,193.08 | ||
Cash | $221,333.33 | ||
(To record retirement of bonds payable) | |||
December 31, 2016 | Interest expense | $81,250 | |
Cash | $81,250 | ||
(To record payment of interest expense) | |||
December 31, 2016 | Interest expense | $12,000 | |
Discount on convertible bonds | $1,000 | ||
Interest payable | $11,000 | ||
(To record payment of interest expense) | |||
December 31, 2016 | Interest expense | $8,160 | |
Discount on convertible bonds | $660 | ||
Interest payable | $7,500 | ||
(To record payment of interest expense) | |||
December 31, 2016 | Interest expense | $6,010.50 | |
Discount on notes payable | $6,010.50 | ||
(To record payment of interest expense) | |||
December 31, 2016 | Interest expense | $30,649.39 | |
Premium on bonds payable | $2,350.61 | ||
Cash | $33,000.00 | ||
(To record payment of interest expense) |
Table (1)
Working notes:
Calculate loss on bonds redemption.
Calculate unamortized premium as on 11/01/2016.
Particulars | Amount |
Unamortized premium on 1/1/2013 ($20,302 × 1÷ 4) | $5,075.50 |
Less: Amortized as on 6/30/2013 ($2,984.90 × 1 ÷ 4) | $746.23 |
Less: Amortized as on 11/1/2013 ($2,984.90 × 1 ÷ 4) | $522.35 |
Unamortized premium as on 11/1/2013 | $3,806.92 |
Table (2)
2.
Prepare long-term debt section of Corporation D‘s partial balance sheet as on 31st December 2016.
2.
Explanation of Solution
Notes payable:
Notes Payable is a written promise to pay a certain amount on a future date, with certain percentage of interest. Companies use to issue notes payable to meet short-term financing needs
Corporation D | ||
Long-Term Debt | ||
December 31, 2016 | ||
Particulars | Amount | Amount |
12.5% bonds payable (due 31st December 2018) | $1,300,000 | |
Add: 11% convertible bonds (due 31st March 2019) | $400,000 | |
Less: discount on bonds payable | $9,000 | $391,000 |
9% Bonds (detachable warrants) | $100,000 | |
Less: Discount on bonds payable | $2,508 | $97,492 |
11% Bonds payable (due 31st December 2019) | $600,000 | |
Add: Premium on bonds payable | $10,637.22 | $610,637.22 |
4 years non-interest bearing note | $80,000 | |
Less: Discount on notes payable | $13,884.50 | $66,115.50 |
Total long term liabilities | $2,465,244.72 |
Table (3)
Want to see more full solutions like this?
Chapter 14 Solutions
EBK INTERMEDIATE ACCOUNTING: REPORTING
- Use the financial statement effects template to record the accounts and amounts for the following four transactions involving investments in marketable debt securities classified as available-for-sale securities. Assume that these transactions occur in 2016 (before the new rules for securities went into effect).a. Loudder Inc. purchases 5,000 bonds with a face value of $1,000 per bond. The bonds are purchased at par for cash and pay interest at a semi-annual rate of 4%.b. Loudder receives semi-annual cash interest of $200,000.c. Year-end fair value of the bonds is $978 per bond.d. Shortly after year-end, Loudder sells all 5,000 bonds for $970 per bond.Use negative signs with answers, if appropriate.arrow_forwardBlue Corporation sold $2,220,000, 7%, 5-year bonds on January 1, 2017. The bonds were dated January 1, 2017, and pay interest on January 1. Blue Corporation uses the straight-line method to amortize bond premium or discount. Prepare all the necessary journal entries to record the issuance of the bonds and bond interest expense for 2017, assuming that the bonds sold at 105. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Jan. 1 enter an account title for the journal entry on January 1 enter a debit amount enter a credit amount enter an account title for the journal entry on January 1 enter a debit amount enter a credit amount enter an account title for the journal entry on January 1 enter a debit amount enter a credit amount Dec. 31 enter an account…arrow_forwardChowan Corporation issued $136,000 of 7% bonds dated January 1, 2016, for $131,421.73 on January 1, 2016. The bonds are due December 31, 2019, were issued to yield 8%, and pay interest semiannually on June 30 and December 31. Chowan uses the effective interest method of amortization. Required: Prepare the journal entries to record the issue of the bonds on January 1, 2016, and the interest payments on June 30, 2016, December 31, 2016, and June 30, 2017. In addition, prepare a bond interest expense and discount amortization schedule for the bonds through June 30, 2017.arrow_forward
- The following transactions are taken from the records of the Elton Corporation. Prepare journal entries for the transactions for the following: a. Bonds payable with a par value of $800,000, carrying a stated interest rate of 9% payable semiannually on March 1 and September 1, were issued on June 1, 2014, at 102.5 plus accrued interest. The bonds are dated March 1, 2014 and mature on March 1, 2024. b. September 1 interest payment is made. (Bond premium amortization is recorded only at year end.) c. Year-end (December 31) accrued interest on bonds payable is recorded and the bond premium is amortized using the straight-line method. d. March 1 interest payment is made. e. Bonds with a par value of $350,000 are purchased at 101 plus accrued interest on August 1, 2015, and retired. (Bond premium amortization is recorded only at year end.) f. September 1 interest payment is made. g. Year-end (December 31) accrued interest on bonds payable is recorded and the bond premium is amortized using…arrow_forwardOn January 1, 2017, Henderson Corporation redeemed $500,000 of bonds at 99. At the time of redemption, the unamortized premium was $15,000. Prepare the corporation’s journal entry to record the reacquisition of the bonds .arrow_forwardGrocery Corporation received $300,328 for 11 percent bonds issued on January 1, 2015, at a market interest rate of 8 percent. The bonds had a total face value of $250,000, stated that interestwould be paid each December 31, and stated that they mature in 10 years.Required:Complete the following table for each account by indicating ( a ) whether it is reported on the Balance Sheet (B/S) or Income Statement (I/S); ( b ) the dollar amount by which the account increases( 1 ), decreases ( 2 ), or does not change (0) when Grocery Corporation issued the bonds; and( c ) the direction of change in the account [increase ( 1 ), decrease ( 2 ), or no change (0)] whenGrocery Corporation records the interest payment on December 31arrow_forward
- Presented below is selected information related to the financial instruments of Novak Company at December 31, 2025. This is Novak Company's first year of operations. Carrying Amount Fair Value (at December 31) Investment in debt securities (intent is to hold to maturity) $42,600 $43,500 Investment in Chen Company stock 737,000 856,500 Bonds payable 241,500 217,100 (a) Novak elects to use the fair value option for these investments. Assuming that Novak's net income is $108,000 in 2025 before reporting any securities gains or losses, determine Novak's net income for 2025. Assume that the difference between the carrying value and fair value is due to credit deterioration. Novak's net income for 2025 $ 228,400 (b) Record the journal entry, if any, necessary at December 31, 2025, to record the fair value option for the bonds payable. (List debit entry before credit entry. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is…arrow_forwardIn the course of analyzing the liabilities section of ABC Compnay, you found that the entity on January 2, 2017 issued at a premium bonds payable with a face value of P500,000. The premium was erroneously credited by the company to Interest Income. The bonds are payable on December 31, 2024 and pay interest semiannually on June 30 and December 31. You instructed your staff to compute the premium amortization using the interest method and he provided you with the following: Premium amortization from January 2, 2017 to June 30, 2017 P1,562 Bond carrying value as of June 30, 2017 555,738 Total interest paid on bonds for the year 2017 (payments made on June 30 and December 31) 70,000 15. The annual effective interest rate on the bonds is a. 10% b. 11% c. 12% d. 14% e. None of thesearrow_forwardOn January 1, 2015, Montock Company purchased as held-to-maturity debt securities $250,000 face value of Stark Corporation's 10% bonds for $325,500. The bonds were purchased to yield 15% interest and pay interest annually. The bonds mature on January 1, 2020. Montock uses the effective interest method of amortization. What amount should Montock report on its December 15, 2015, balance sheet as an investment in held-to-maturity debt securities? A. $394, 325, B. $349,325, C. $320, 550, or D. $57,550.arrow_forward
- At December 31, 2017, Hyasaki Corporation has the following account balances: Bonds payable, due January 1, 2026 $2,000,000 Discount on bonds payable 88,000 Interest payable 80,000 Show how the above accounts should be presented on the December 31, 2017, balance sheet, including the proper classifications.arrow_forwardThe balance sheet of Indian River Electronics Corporation as of December 31, 2017, included 12.25% bondshaving a face amount of $90 million. The bonds had been issued in 2010 and had a remaining discount of $3 million at December 31, 2017. On January 1, 2018, Indian River Electronics called the bonds before their scheduledmaturity at the call price of 102.Required:Prepare the journal entry by Indian River Electronics to record the redemption of the bonds at January 1, 2018.arrow_forwardThe balance sheet of Indian River Electronics Corporation as of December 31, 2015, included 12.25% bonds having a face amount of $90 million. The bonds had been issued in 2008 and had a remaining discount of $3 million at December 31, 2015. On January 1, 2016, Indian River Electronics called the bonds before their scheduled maturity at the call price of 102. Required: Prepare the journal entry by Indian River Electronics to record the redemption of the bonds at January 1, 2016.arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education