Carr Corporation issued $42,000 of 6 percent, 11-year bonds on January 1, 2016,
ID: 2594173 • Letter: C
Question
Carr Corporation issued $42,000 of 6 percent, 11-year bonds on January 1, 2016, for a price that reflected a 7 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.
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.)
Carr Corporation issued $42,000 of 6 percent, 11-year bonds on January 1, 2016, for a price that reflected a 7 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.
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.)
Explanation / Answer
a Amount PV factor Present value Annual interest 2520 7.498674 18897 Principal 42000 0.475093 19954 Selling price 38851 b Cash 38851 Discount on bonds payable 3149 Bonds payable 42000 c Interest expense 2719.57 =38851*7% Discount on bonds payable 199.57 Cash 2520