ABC Enterprises issues $400,000 of bonds paying a stated interest rate of 7%. Th
ID: 2513260 • Letter: A
Question
ABC Enterprises issues $400,000 of bonds paying a stated interest rate of 7%. The bonds are due in 10 years, with interest payable annually each year on Jan. 1st. When the bonds are issued, other bonds of similar risk and maturity are paying 11% (i.e. the discount rate or market interest rate is 11%).
Calculate the issuance (selling) price of this bond:
Present value of interest payments (annuity portion)
_______ (int. payment) * _______(factor)_ =
Present Value of Bond Principal (single sum value)
400,000 (principal) * ________(factor)_=
Total Present Value, or selling price
Is the bond issued at a premium, discount, or face value (par)?
On June 4rd Chandler & Monica Grocery Store collected sales of $5,000 and sales taxes of $200. What is the journal entry that Chandler & Monica Grocery Store needs to record for this activity? (You may or may not need all rows of this textbox)
Gunther Company purchased a building on January 1st by signing a long-term $4,500,000 mortgage with monthly payments of $50,125. The mortgage carries an interest rate of 8%.
Write the journal entry to record the purchase of the building by signing the long-term mortgage. (You may or may not need all rows of this textbox)
Write the journal entry to record the first monthly payment (Jan. 31st) by Gunther. (You may or may not need all rows of this textbox)
What is the balance in the Mortgage Payable account, after this first monthly payment is recorded?
Write the journal entry to record the second monthly payment (Feb. 28th) by Gunther. (You may or may not need all rows of this textbox)
What is the balance in the Mortgage Payable account, after this second monthly payment is recorded?
Mike Company issued $5,000,000 of 8%, 10-year bonds on January 1, 2014, for $4,731,582. The market or effective interest rate is 9%. Interest is paid annually on each January 1st, and the effective-interest method of amortization is to be used.
Provide the journal entry to record issuance of these long-term bonds. (You may or may not need all rows of this textbox).
Provide the end of the year adjusting journal entry (for Dec. 31, 2014) to record accrued Interest Expense for this bond (using the effective-interest method of amortization). (You may or may not need all rows of this textbox).
Provide the journal entry required on Jan. 1, 2015, when the interest is paid. (You may or may not need all rows of this textbox).
Using a “T” account “post” (show) the above entries to the Discount on Bond Payable T-account. What is the account’s balance?
What is the Bond Carrying Value that would appear on Mike’s 12/31/14 Balance Sheet?
Present value of interest payments (annuity portion)
_______ (int. payment) * _______(factor)_ =
Present Value of Bond Principal (single sum value)
400,000 (principal) * ________(factor)_=
Total Present Value, or selling price
Explanation / Answer
Present value of interest payment = 28000 * 5.8892 = 164898
Present value of Bond Principal = 400000 * 0.3522 = 140874
Total Selling price = 305772
Bond issued price is less than face value, it means bond was issued on discount
(b) Cash A/c dr 5200
to Sales 5000
to Sales tax payable 200
(c) Bilding a/c dr 4500000
to Loan a/c 4500000
(d) Interest exp a/c dr 30000 (4500000*8%/12)
Loan a/c dr 20125
to Cash a/c 50125