On January 1st 2017 the Bilbo Company issued (sold) $100,000 of 8% semi-annual 1
ID: 2585942 • Letter: O
Question
On January 1st 2017 the Bilbo Company issued (sold) $100,000 of 8% semi-annual 10 year bonds for S 124,000. Each of these 100 bonds came with 4 detachable warrants. Each warrant allowed the holder the right to purchase 10 shares of Bilbo ($5 par) common stock at $45 per share. At the time the bonds were issued each warrant was determined to be worth $100 each set. a) make the journal entry Bilbo makes on January 1st when it sells the bonds with the detachable warrants. b) Since the difference is not material, Bilbo has elected to use the straight-line method to amortize the interest on their bonds make the journal entry Bilbo makes on July 1st 2017 when they make the first interst payment c) On October 1st, all of the warrants are redeemed and Bilbo issues the stock connected with the warrants make the journal entry Bilbo makes when it issues the stock d) Make the adjusting entry Bilbo needs on December 31st 2017 (remember the interst isn't paid until January 1st) e) make the entry Bibo makes on January 1st when it makes the second interst payment )On January 2nd Bilbo retires all of the bonds by paying $100,000. Make the necessary entry for Bilbo at the retirement of the bonds.Explanation / Answer
1 8% 10 YEAR BOND OF 100,000, for 124,000 No of N=Bonds 100 One Bond 1000 Semi Annual Interest Rate 4.00% Market rate n n period 20 getting interest 40 each six month 124000=40*(PVIF,r%,20)+1000*(PVIF,r%,20) r=2.465% Issue Price= 124,000 Preimum onFace value of the Bonds =124000-100000=24,000 Amortisation at each period of six month=24000/20=1,200 2 Amortisation Table Issue Price Amortisation Value of Bonds Interest Total Interest Expense 0 01/01/2017 1,24,000.00 1 01/07/2017 1,200.00 1,22,800.00 4,000.00 2,800.00 2 01/01/2018 1,200.00 1,21,600.00 4,000.00 2,800.00 3 Journal Entry Date Account Title Debit Credit 1-Jan-17 Cash 1,24,000 8% Bonds 1,24,000 Date Account Title Debit Credit 1-Jul-17 Interest 2,800.00 8% Bond 1,200.00 Cash 4,000.00 Date Account Title Debit Credit 1-Oct-17 Cash 1,80,000.00 Stock 20,000.00 Additional paid in stock 1,60,000.00 Date Account Title Debit Credit 31-Dec-17 Interest 2,800.00 8% Bond 1,200.00 Interest Accrued but not due 4,000.00 Date Account Title Debit Credit 1-Jan-18 Interest Accrued but not due 4,000.00 Cash 4,000.00 Date Account Title Debit Credit 2-Jan-18 8% Bond 1,21,600.00 Gain on redemption of Bond 21,600.00 Cash 1,00,000.00 Working Note: 2.465% Year Inflow Dis. Fact. PV 1 40 0.975943005 39.04 2 40 0.952464749 38.10 3 40 0.929551309 37.18 4 40 0.907189098 36.29 5 40 0.885364854 35.41 6 40 0.864065636 34.56 7 40 0.843278813 33.73 8 40 0.822992059 32.92 9 40 0.803193343 32.13 10 40 0.783870925 31.35 11 40 0.765013346 30.60 12 40 0.746609424 29.86 13 40 0.728648245 29.15 14 40 0.711119157 28.44 15 40 0.694011767 27.76 16 40 0.67731593 27.09 17 40 0.661021744 26.44 18 40 0.645119547 25.80 19 40 0.629599909 25.18 20 1040 0.614453627 639.03 1,240.09 Details of issue of shares Premium on shares 4*10*40*100 1,60,000 Shares fave value 4*10*5*100 20,000 Cash 1,80,000