Please show work to ensure accuracy! Thank you On June 30, 2017, ABC Co. issued
ID: 2589432 • Letter: P
Question
Please show work to ensure accuracy! Thank you
On June 30, 2017, ABC Co. issued $4,100,000 face value of 13%, 20-year bonds at $4,408,441, a yield of 12%. Ivanhoe uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and December 31.
Prepare the journal entries to record the following transactions. (Round answer to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
List of Accounts
Accumulated Depreciation-EquipmentAccumulated Depreciation-Machinery
Allowance for Doubtful Accounts
Bad Debt Expense
Bond Issue Expense
Bonds Payable
Buildings
Cash
Common Stock
Debt Investments
Depreciation Expense
Discount on Bonds Payable
Discount on Notes Payable
Discount on Notes Receivable
Equipment
Equity Investments
Gain on Disposal of Machinery
Gain on Disposal of Land
Gain on Disposal of Plant Assets
Gain on Redemption of Bonds
Gain on Restructuring of Debt
Gain on Sale of Machinery
Interest Expense
Interest Payable
Interest Receivable
Interest Revenue
Land
Loss on Disposal of Land
Loss on Redemption of Bonds
Machinery
Mortgage Payable
No Entry
Notes Payable
Notes Receivable
Paid-in Capital in Excess of Par - Common Stock
Paid-in Capital in Excess of Par - Preferred Stock
Premium on Bonds Payable
Sales Revenue
Unamortized Bond Issue Costs
Unearned Revenue
Unearned Sales Revenue
Unrealized Holding Gain or Loss - Income (1) The issuance of the bonds on June 30, 2017. (2) The payment of interest and the amortization of the premium on December 31, 2017 (3) The payment of interest and the amortization of the premium on June 30, 2018. (4) The payment of interest and the amortization of the premium on December 31, 2018. No. Date Account Titles and Explanation Debit Credit (1) June 30, 2017 (2) December 31, 2017 (3) June 30, 2018 (4) December 31, 2018
Explanation / Answer
Journal entries to record the following transactions
Liability for Bonds payable on December 31, 2018 is:
(1) Interest expense reported in 2018 is $528,647
(2) Interest expense reported by Straight line method is 517,578.
So bond interest expense reported in 2018 is greater than the amount is should be by staright line method.
Working:
3.Total cost of borrowing over life of bond is:
Issue Price 4,408,541
Interest Expense 10,351,476
Total cost 14,759,917
(4) Total bond Interest expense by effective interest method is $10,351,476
Total bond Interest expense by straight line method method is $10,351,559
Interest by effective interest method is lesser than by straight line method.
Working:
Interest By Effective Interest is:
Interest by Straight line method is:
Date Particulars L.F Amount ($) Amount ($) 2017 Jun-30 Cash 4,408,441 Unamortized Bond Premium 308,441 Bond payable 4,100,000 (for bond issued at 12% for 20 years) Dec-31 Interest expense 264,506 Unamortized Bond Premium 1,994 Cash 266,500 (For interest paid on 6% bonds and amortization of discount for half year) 2018 Jun-30 Interest expense 264,387 Unamortized Bond Premium 2,113 Cash 266,500 (For interest paid on 6% bonds and amortization of discount for half year) Dec-31 Interest expense 264,260 Unamortized Bond Premium 2,240 Cash 266,500 (For interest paid on 6% bonds and amortization of discount for half year)