Bond Discount, Entries for Bonds Payable Transactions On July 1, 2014, Brower In
ID: 2445141 • Letter: B
Question
Bond Discount, Entries for Bonds Payable Transactions
On July 1, 2014, Brower Industries Inc. issued $2,300,000 of 4-year, 10% bonds at a market (effective) interest rate of 12%, receiving cash of $2,157,175. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.
Required:
1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, 2014. For a compound transaction, if an amount box does not require an entry, leave it blank.
Hide Feedback
Correct
Check My Work Feedback
Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account.
The straight-line method of amortization provides equal amounts of amortization over the life of the bond.
Learning Objective 2, Learning Objective 3.
2. Journalize the entries to record the following: For a compound transaction, if an amount box does not require an entry, leave it blank.
a. The first semiannual interest payment on December 31, 2014, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.)
Hide Feedback
Partially Correct
Check My Work Feedback
Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account.
The straight-line method of amortization provides equal amounts of amortization over the life of the bond.
Learning Objective 2, Learning Objective 3.
b. The interest payment on June 30, 2015, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.)
Hide Feedback
Partially Correct
Check My Work Feedback
Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account.
The straight-line method of amortization provides equal amounts of amortization over the life of the bond.
Learning Objective 2, Learning Objective 3.
3. Determine the total interest expense for 2014. Round to the nearest dollar.
$
4. Will the bond proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of interest?
SelectYesNoCorrect 2 of Item 4
5. Compute the price of $2,157,175 received for the bonds by using Table 1 and Table 2. (Round to the nearest dollar.) Your total may vary slightly from the price given due to rounding differences.
Hide Feedback
Partially Correct
Check My Work Feedback
Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account.
The straight-line method of amortization provides equal amounts of amortization over the life of the bond.
Learning Objective 2, Learning Objective 3.
HideHint(s)
1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, 2014. For a compound transaction, if an amount box does not require an entry, leave it blank.
Explanation / Answer
1. cash Account Dr $2157175
Discount on bond Dr. $142825
To 10% bond 2300000
(being 10%bond issued at discount)
2 (a) Interest on bond Dr. $115000
To cash $115000
(Being interest on bond recorded on 31 Dec for 6 month 115000{2300000 * 6/12 * 10%} )
Interest expenses Dr. $35706
To discount on bond $ 35706
(Being discount issued on bond amortised of $35706 [ $142825 / 4} as interest expense)
(b) Interest on bond Dr. $115000
To cash $115000
(Being interest on bond recorded on 30 June for 6 month 115000{2300000 * 6/12 * 10%} )
Interest expenses Dr. $35706
To discount on bond $ 35706
(Being discount issued on bond amortised of $35706 [ $142825 / 4} as interest expense)
3 Total interest expense = (115000 + 35706) + (115000 + 35706)
= $ 301412