On January 1, 2016, Parker Company issued bonds with a face value of $53,000, a
ID: 2527800 • Letter: O
Question
On January 1, 2016, Parker Company issued bonds with a face value of $53,000, a stated rate of interest of 11 percent, and a five-year term to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 13 percent at the time the bonds were issued. The bonds sold for $49,272. Parker used the effective interest rate method to amortize the bond discount. (Round your intermediate calculations and final answers to the nearest whole dollar amount.)
A. Prepare an amortization table
B. What is the carrying value that would appear on the 2019 balance sheet?
C. What is the interest expense that would appear on the 2019 income statement?
D. What is the amount of cash outflow for interest that would appear in the operating activities section of the 2019 statement of cash flows?
Carr Corporation issued $79,000 of 5 percent, 12-year bonds on January 1, 2016, for a price that reflected a 6 percent market rate of interest. Interest is payable annually on December 31.
To determine the appropriate discount factor(s) using tables, click here to view Tables I, II, III, or IV in the appendix. Alternatively, if you calculate the discount factor(s) using a formula, round to six (6) decimal places before using the factor in the problem.
http://lectures.mhhe.com/connect/0073527122/Tables/table1.JPG
http://lectures.mhhe.com/connect/0073527122/Tables/table2.JPG
http://lectures.mhhe.com/connect/0073527122/Tables/table3.JPG
http://lectures.mhhe.com/connect/0073527122/Tables/table4.JPG
A. What was the selling price of the bonds? (Round your intermediate calculations and final answer to the nearest dollar amount.)
B. Prepare the journal entry to record issuing the bonds. (Round your intermediate calculations and final answers to the nearest dollar amount. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
C. Prepare the journal entry for the first interest payment on December 31, 2016, using the effective interest rate method. (Round your intermediate calculations and final answers to 2 decimal places. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Date Cash Payment Interest Expense Discount Amortizartion Carrying Value January 1, 2016 49.272 December 31, 2016 5,830 6,405 575 49,847 December 31, 2017 December 31, 2018 December 31, 2019 December 31, 2020 Totals
Explanation / Answer
Answer 1-A. Discount Amortization Schedule Date Interest Paid - $53,000 X 11% Interest Expense - Preceeding Bond Carrying Value X 13% Discount Amortization Unamortized Discount Bonds Carrying Amount A B C = B - A D = D - C E = $53,000 - D 1-Jan-16 - - - 3,728.00 49,272 31-Dec-16 5,830 6,405 575 3,153 49,847 31-Dec-17 5,830 6,480 650 2,503 50,497 31-Dec-18 5,830 6,565 735 1,768 51,232 31-Dec-19 5,830 6,660 830 938 52,062 31-Dec-20 5,830 6,768 938 0 53,000 Totals 29,150 32,878 3,728 Answer 1-B Bonds Carrying Value - Dec 31, 2019 52,062 Answer 1-C. Interest Expense - 2019 Income Statement 6,660 Answer 1-D. Cash Outflow of Interest 5,830 As per Chegg guidelines, you can ask 1 question, having 4 sub parts. For other question, please ask it gain.