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Chapter 12: 8TI (page 649)

On January 1, 2018, when the market interest rate is 6%, Hawkins Corporation issues \(200,000 of 8%, five-year bonds payable. The bond pay interest semianually. Hawkins Corporation recieved \)217,040 in cash at issuance. Assume interest payment dates are June 30 and December 31. Prepare an effective-intesret amortization method amortization table for the first two semiannual interest periods.

Short Answer

Expert verified

The carrying amount of the bonds on December 31, 2018, is $214,017.73

Step by step solution

01

definition of carrying amount

The carrying is the amount at which the bond is purchased.

02

Bond amortization schedule

Date Cash Paid Interest ExpensePremium AmortizationCarrying Amount
January 1,2018


$217,040
june 18,2018$8,000$6,511.2$1,488.8$215.551.2
December 31,2018$8,000$6,466.53$1533.47$214,017.73





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Most popular questions from this chapter

Your grandfather would like to share some of his fortune with you. He offers to give

you money under one of the following scenarios (you get to choose):

1. \(8,750 per year at the end of each of the next six years

2. \)49,650 (lump sum) now

3. $100,450 (lump sum) six years from now

C H A P T E R 1 2

Requirements

1. Calculate the present value of each scenario using a 6% discount rate. Which scenario

yields the highest present value? Round to the nearest dollar.

2. Would your preference change if you used a 12% discount rate?

Explain each of the key factors that the time value of money depends on.

Preparing an amortization schedule and recording mortgages payable

entries

Kellerman Company purchased a building and land with a fair market value of

\(550,000 (building, \)425,000, and land, \(125,000) on January 1, 2018. Kellerman

signed a 20-year, 6% mortgage payable. Kellerman will make monthly payments of

\)3,940.37. Round to two decimal places. Explanations are not required for journal

entries.

Requirements

1. Journalize the mortgage payable issuance on January 1, 2018.

2. Prepare an amortization schedule for the first two payments.

3. Journalize the first payment on January 31, 2018.

4. Journalize the second payment on February 28, 2018.

Retiring bonds payable before maturity

On January 1, 2018, Powell Company issued $350,000 of 10%, five-year bonds

payable

at 102. Powell Company has extra cash and wishes to retire the bonds payable

on

January 1, 2019, immediately after making the second semiannual interest

payment. To

retire the bonds, Powell Company pays the market price of 98.

Requirements

1. What is Powell Company’s carrying amount of the bonds payable on the

retirement

date?

2. How much cash must Powell Company pay to retire the bonds payable?

3. Compute Powell Company’s gain or loss on the retirement of the bonds

payable.

What is the difference betwee the stated interest rate and the market interest rate?
See all solutions

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