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Chapter 12: 2RQ (page 654)
What is an amortization schedule?
Amortization is a process by which thw amount of the liability is decreased with the help of regular payments.
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Journalizing bond transactions including retirement at maturity
McQueen Company issued a $100,000, 7.5%, 10-year bond payable. Journalize
the following
transactions for McQueen Company, and include an explanation for each
entry:
a. Issuance of the bond payable at face value on January 1, 2018.
b. Payment of semiannual cash interest on July 1, 2018.
c. Payment of the bond payable at maturity, assuming the last interest
payment had
already been recorded. (Give the date.)
Determining the present value of bonds payable
Interest rates determine the present value of future amounts. (Round to the nearest
dollar.)
Requirements
1. Determine the present value of 10-year bonds payable with face value of $86,000
and stated interest rate of 14%, paid semiannually. The market rate of interest is
14% at issuance.
2. Same bonds payable as in Requirement 1, but the market interest rate is 16%.
3. Same bonds payable as in Requirement 1, but the market interest rate is 12%.
Preparing the liabilities section of the balance sheet
Luxury Suites Hotels includes the following selected accounts in its general ledger at
December 31, 2018:
Notes Payable (long-term) \( 200,000 Accounts Payable \) 33,000
Bonds Payable (due 2022) 450,000 Discount on Bonds Payable 13,500
Interest Payable (due next year) 1,000 Salaries Payable 2,600
Estimated Warranty Payable 1,300 Sales Tax Payable 400
Prepare the liabilities section of Luxury Suites’s balance sheet at December 31, 2018.
Journalizing bond issuance and interest payments
On January 1, 2018, Roberts Unlimited issues 8%, 20-year bonds payable with aface value of $240,000. The bonds are issued at 104 and pay interest on June 30 andDecember 31.
Requirements
1. Journalize the issuance of the bonds on January 1, 2018.
2. Journalize the semiannual interest payment and amortization of bond premium onJune 30, 2018.
3. Journalize the semiannual interest payment and amortization of bond premium onDecember 31, 2018.
4. Journalize the retirement of the bond at maturity, assuming the last interest paymenthas already been recorded. (Give the date).
Explain each of the key factors that the time value of money depends on.
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