On January 1, a company issues bonds dated January 1 with a par value of $340,00

Question

On January 1, a company issues bonds dated January 1 with a par value of $340,000. The bonds mature in 3 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 10%. Using the present value factors below, the issue (selling) price of the bonds is:

Multiple Choice

$340,000.

$253,708.

$331,366.

$77,658.

$348,634.

On January 1, a company issued and sold a $330,000, 4%, 10-year bond payable, and received proceeds of $323,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The carrying value of the bonds immediately after the first interest payment is:

Multiple Choice

$322,650.

$323,350.

$330,000.

$329,650.

$330,350.

On January 1, a company issues bonds dated January 1 with a par value of $450,000. The bonds mature in 5 years. The contract rate is 10%, and interest is paid semiannually on June 30 and December 31. The market rate is 11% and the bonds are sold for $433,026. The journal entry to record the second interest payment using the effective interest method of amortization is:

Multiple Choice

Debit Interest Expense $23,816.43; credit Discount on Bonds Payable $1,316.43; credit Cash $22,500.00.

Debit Interest Payable $22,500.00; credit Cash $22,500.00.

Debit Interest Expense $21,183.57; debit Discount on Bonds Payable $1,316.43; credit Cash $22,500.00.

Debit Interest Expense $21,183.57; debit Premium on Bonds Payable $1,316.43; credit Cash $22,500.00.

Debit Interest Expense $23,888.83; credit Discount on Bonds Payable $1,388.83; credit Cash $22,500.00.

n= i= Present Value of an Annuity Present value of $1 3 9.0 % 2.5313 0.7722 6 4.5 % 5.1579 0.7679 3 10.0 % 2.4869 0.7513 6 5.0 % 5.0757 0.7462

Explanation / Answer

1) Issue price of bonds = (340000*4.5%*5.0757+340000*.7462) = 331366

so answer is c) $331,366

2) Amortization of first interest payment = (330000-323000/20) = 350

Carrying value after first interest payment = (323000+350) = 323350

so answer is b) $323350

3) Journal entry :

so answer is e) Debit Interest Expense $23,888.83; credit Discount on Bonds Payable $1,388.83; credit Cash $22,500.00.

Date Accounts & explanation debit credit Interest expense (433026+1316.43*11%*6/12) 23888.83     Discount on bonds payable 1388.83      Cash (450000*10%*6/12) 22500

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---