Analyzing and Reporting Financial Statement Effects of Bond Transactions Lundhol
ID: 2436279 • Letter: A
Question
Analyzing and Reporting Financial Statement Effects of Bond Transactions
Lundholm, Inc., reports financial statements each December 31 and issues $600,000, 7%, 15-year bonds dated May 1, 2012, with interest payments on October 31 and April 30. Assuming the bonds are sold at par on May 1, 2012, complete the financial statement effects template to reflect the following events: (a) bond issuance, (b) the first semiannual interest payment, and (c) retirement of $200,000 of the bonds at 101 on November 1, 2012.
Use negative signs with your answers, when appropriate.
Balance Sheet
Contributed
Capital
Earned
Capital
Income Statement
Net
Income
Balance Sheet
Transaction Cash Asset + Noncash Assets = Liabilities +Contributed
Capital
+Earned
Capital
(a) Answer Answer Answer Answer Answer (b) Answer Answer Answer Answer Answer (c) Answer Answer Answer Answer AnswerExplanation / Answer
Answers
‘a’
Issued at $ 600,000 par = Cash received = Bonds Payable = $ 600,000
‘b’
First six month interest = 600000 x 7% x 6/12 = $ 21,000 paid in cash, recorded as “Interest expenses”
‘c’
Amount repaid = $ 200,000 x 101% = $ 202,000. Loss(accounted as Expense) on repayment = 202000 – 200000 = $ 2000
Balance Sheet
Income Statement
Transaction
Cash Asset
+
Noncash Assets
=
Liabilities
+
Contributed
+
Earned
Revenue
-
Expenses
=
Net
Capital
Capital
Income
(a)
$ 600,000.00
$ -
$ 600,000.00
$ -
$ -
$ -
$ -
$ -
(b)
$ (21,000.00)
$ -
$ -
$ -
$ (21,000.00)
$ -
$ 21,000.00
$ (21,000.00)
(c)
$ (202,000.00)
Answer
$ (200,000.00)
$ -
$ (2,000.00)
$ -
$ 2,000.00
$ (2,000.00)
Balance Sheet
Income Statement
Transaction
Cash Asset
+
Noncash Assets
=
Liabilities
+
Contributed
+
Earned
Revenue
-
Expenses
=
Net
Capital
Capital
Income
(a)
$ 600,000.00
$ -
$ 600,000.00
$ -
$ -
$ -
$ -
$ -
(b)
$ (21,000.00)
$ -
$ -
$ -
$ (21,000.00)
$ -
$ 21,000.00
$ (21,000.00)
(c)
$ (202,000.00)
Answer
$ (200,000.00)
$ -
$ (2,000.00)
$ -
$ 2,000.00
$ (2,000.00)