Could you please explain in detail what are the right answers for those I got wr
ID: 2510187 • Letter: C
Question
Could you please explain in detail what are the right answers for those I got wrong?The fiscal year ends December 31 for Lake Hamiton Development To provide funding for its Moonlight Bay project, LHD issued 7% bonds with a face amount of $700,000 on November 1, 2016 The bonds sold for S630726, a pnce to yeld the market rate of 8%. The bonds mature October 31, 2036 (20 years) Interest is paid semiannually on April 30 and October 31 Required: 1. What amount of interest expense related to the bonds will LHD report in its income statement for the year ending December 31, 2016? Answer is complete and correct. s 8,410 2. What amount(s) related to the bonds will LHD report in its balance sheet at December 31, 2016? Answer is complete and correct. Bonds payable Interest payable 630,969 8,167 3. What amount of interest expense related to the bonds will LHD report in its income statement for the year ending December 31, 2017? Answer is complete but not entirely correct. s 49,000 4. What amount(s) related to the bonds will LHD réport in its balance sheet at December 31, 2017? Answer is complete but not entirely correct. Bonds payable 632,483 50,514 Interest payable
Explanation / Answer
Present question is based on Amortization of Bond Discount based on Effective Interest method
Interest expense = Coupon payment+ Discount amortization
Journal
Nov 01 2016 Cash a/c Dr 630726
To Bonds payable ( Face value) 700000
To Discount on Bonds (Dif) 69274
Dec 31 2016 Interest expense a/c Dr
(630726×8/100×2/12=8410)
To Interest payable a/c 8167
(700000×7/100×2/12=8167)
To Discount on Bonds (Dif) 243
Bonds payable=630726+243= 630969
April 30 2017 Interest expense a/c Dr 16826
(630969×8/100×4/12=16826)
To Interest payable a/c 16333
(700000×7/100×4/12=16333)
To Discount on bonds (Dif) 493
Bonds payable=630969+493=631462
Interest payable a/c Dr 24500
To cash/ Bank a/c 24500
0ct 31 2017 Interest expense a/c Dr 25258
(631462×8/100×6/12=25258)
To Interest payable a/c 24500
(700000×7/100×6/12=24500)
To Discount on Bonds payable a/c (Dif) 758
Bonds payable=631462+758=632220
Interest Payable a/c Dr 24500
To Cash /Bank a/c 24500
Dec 31 2017 Interest expense a/c Dr 8430
(632220×8/100×2/12=8430)
To Interest payable a/c 8167
(700000×7÷100×2/12=8167)
To Discount on Bonds payable 263
Answer to No-3
Interest expense for 2017=16826 +25258+8430=50514-Transferred to P&L Debit side
Answer to No-4
Bonds Payable = 632220 + 263=632483-B/S liability side
Interest payable = 8167 since upto Oct 31 2017 interest has been paid-B/s Liability side