Analyzing and Reporting Financial Statement Effects of Bond Transactions On Janu
ID: 2411849 • Letter: A
Question
Analyzing and Reporting Financial Statement Effects of Bond Transactions On January 1, 2016, Hutton Corp. issued $200,000 of 15-year, 14% bonds payable for $261,489 yielding an effective interest rate of 10%. Interest is payable semiannually on June 30 and December 31. Required a. Show computations to confirm the issue price of $261,489. (Use a calculator or Excel for your calculations. Round your answers to the nearest dollar.) Present value of principal repayment Present value of interest payments elling price of bonds b. Prepare journal entries to record the bond issuance, semiannual interest payment and premium amortization on June 30, 2016, and semiannual interest payment and premium amortization on December 31, 2016. Use the effective interest rate method Round your answers to the nearest dollar.)Explanation / Answer
a) selling price of bonds: Present value of principal repayment = (200000*.23138) 46276 present value of interest payments = 14000*15.37235 215213 261489 b Debit credit 01-01-16 cash 261489 Bond premium 61489 bond payable 200000 (being cash received against bonds issued) 6/30/16 interest expense 13074 ROUND(261489*5%,0) bond premium 926 cash 14000 (being interest paid) 12/31/16 interest expense 13028 ROUND((261489-926)*5%,0) bond premium 972 cash 14000 (being interest paid) c) cash Bonds payable 01-01-16 261489 01-01-16 0 200000 06/30/16 0 14000 06/30/16 0 0 12/31/16 0 14000 12/31/16 0 0 interest expense bond premium 01-01-16 0 01-01-16 0 61489 06/30/16 13074 0 06/30/16 926 0 12/31/16 13028 0 12/31/16 972 0 d) balance sheet income statement Transactions cash liabilities earned capital expenses net income issued bonds at apremium 261489 200000 + 61489 06/30/16 Interest payment on bonds -14000 -926 -13074 -13074 -13074 12/31/16 Interest payment on bonds -14000 -972 -13028 -13028 -13028