On January 1, the first day of the fiscal year, a company issues a $2,300,000, 1
ID: 2529926 • Letter: O
Question
On January 1, the first day of the fiscal year, a company issues a $2,300,000, 11%, five-year bond that pays semiannual interest of $126,500 ($2,300,000 × 11% × ½), receiving cash of $2,251,150. Journalize the first interest payment and the amortization of the related bond discount. Round to the nearest dollar. Refer to the Chart of Accounts for exact wording of account titles. On January 1, the first day of the fiscal year, a company issues a $1,500,000, 11%, five-year bond that pays semiannual interest of $82,500 ($1,500,000 x 11% x ½), receiving cash of $1,604,070. Journalize the bond issuance. Refer to the Chart of Accounts for exact wording of account titles. Gabriel Co. produces and distributes semiconductors for use by computer manufacturers. Gabriel Co. issued $1,200,000 of 10-year, 12% bonds on May 1 of the current year at face value, with interest payable on May 1 and November 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions for the current year. Refer to the Chart of Accounts for exact wording of account titles. May 1 Issued the bonds for cash at their face amount. Nov. 1 Paid the interest on the bonds. Dec. 31 Recorded accrued interest for two months. On January 1, the first day of its fiscal year, Pretender Company issued $18,400,000 of five-year, 12% bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 14%, resulting in Pretender Company receiving cash of $17,107,672. Required: A. Journalize the entries to record the following (refer to the Chart of Accounts for exact wording of account titles): 1. Issuance of the bonds. 2. First semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.) 3. Second semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.) B. Determine the amount of the bond interest expense for the first year. C. Explain why the company was able to issue the bonds for only $17,107,672 rather than for the face amount of $18,400,000.
Explanation / Answer
Discount on bonds payable = $2300000 - $2251150 = $48850
Note: Please confirm exact wording of account titles from the chart of accounts since the same is not provided with the question.
Per Chegg guidelines, independent questions are required to be posted separately.
Date General Journal Debit Credit Jun. 30 Interest expense 131385 Discount on bonds payable ($48850/10) 4885 Cash 126500 (To record interest payment and amortization of discount)