Bond Discount, Entries for Bonds Payable Transactions On July 1, 2014, Brower In
ID: 2445240 • 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.
. 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.)
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.)
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.
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.)
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.
Present value of the face amount $ Present value of the semi-annual interest payments $ Price received for the bonds $Explanation / Answer
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. Ans) Journal Entries Particulars Amount Amount Cash Account Dr $ 2,157,175 Discount on Bonds payable $ 142,825 To Bond Payable Accont $ 2,300,000 (Being Cash Credited to Bonds Payble Account) Interest Payable Account Dr $ 115,000 To Cash Account $ 115,000 (Being interest payed) 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.) Particulars Amount Amount Interest Payable Account Dr $ 115,000 To Cash Account $ 115,000 (Being interest Payed) Discount on bound account Dr $ 17,853 To Discount on Bonds Payable Account $ 17,853 (Being Discount on bound payable Account) 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.) Particulars Amount Amount Interest Payable Account Dr $ 115,000 To Cash Account $ 115,000 (Being interest Payed) Discount on bound account Dr $ 17,853 To Discount on Bonds Payable Account $ 17,853 (Being Discount on bound payable Account) 3. Determine the total interest expense for 2014. Round to the nearest dollar. Interest Expenses $ 115,000 Discount on Bonds Payable Account $ 17,853 $ 132,853 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 Ans) Yes, If the face value is same when market rate of interest is less then bond rate of interest but if the market interest is more then more then bond rate of interest then face value of the bond should be less than the face value. 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. Ans) Price of $2157175 1570930.947 $ 2,300,000 Received after four years Present value after four years 0.683 Present value of the bond $ 1,570,900 $ 1,570,900 Interest $ 115,000 Future value of annuity Factor 6.463 Present value of annuity Factor $ 743,245 $ 743,245 Present Value of bound $ 2,314,145 Present value of the face amount $ 1,570,900 Present value of the semi-annual interest payments $ 743,245 Prive received on the bond $ 2,314,145