Log out Go to App
Go to App

Learning Materials

Features

Discover

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





Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

What is the journal entry to retire bonds at maturity?

Determining the present value of bonds payable and journalizing using the effective-interest amortization method

Ari Goldstein issued $300,000 of 11%, five-year bonds payable on January 1, 2018. The market interest rate at the date of issuance was 10%, and the bonds pay interest semiannually.

Requirements

1. How much cash did the company receive upon issuance of the bonds payable? (Round to the nearest dollar.)

2. Prepare an amortization table for the bond using the effective-interest method, through the first two interest payments. (Round to the nearest dollar.)

3. Journalize the issuance of the bonds on January 1, 2018, and the first second payments of the semiannual interest amount and amortization of the bonds on June 30, 2018, and December 31, 2018. Explanations are not required.

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%.

Analyzing, journalizing, and reporting bond transactions

Johnny’s Hamburgers issued 8%, 10-year bonds payable at 85 on December 31, 2018.

At December 31, 2020, Johnny reported the bonds payable as follows:

Long-term Liabilities:

Bonds Payable \( 300,000

Less: Discount on Bonds Payable (36,000) \) 264,000

Johnny pays semiannual interest each June 30 and December 31.

Requirements

1.Answer the following questions about Johnny’s bonds payable:

a.What is the maturity value of the bonds?

b.What is the carrying amount of the bonds at December 31, 2020?

c.What is the semiannual cash interest payment on the bonds?

d.How much interest expense should the company record each year?

2. Record the June 30, 2020, semiannual interest payment and amortization of discount.

Determining the present value of bonds payable and journalizing using the effective-interest amortization method

Sleep Well, Inc. is authorized to issue 9%, 10-year bonds payable. On January 1, 2018, when the market interest rate is 10%, the company issues $500,000 of the bonds. The bonds pay interest semiannually.

Requirements

1. How much cash did the company receive upon issuance of the bonds payable? (Round to the nearest dollar.)

2. Prepare an amortization table for the bond using the effective-interest method, through the first two interest payments. (Round to the nearest dollar.)

3. Journalize the issuance of the bonds on January 1, 2018, and the first and second payment of the semiannual interest amount and amortization of the bonds on June 30, 2018, and December 31, 2018. Explanations are not required.
See all solutions

Recommended explanations on Business Studies Textbooks

Human Resources

Read Explanation

Managers

Read Explanation

Introduction to Business

Read Explanation

Strategic Analysis

Read Explanation

Business Case Studies

Read Explanation

Business Development

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free