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Chapter 12: Q16SE_1 (page 658)

Using the effective-interest amortization method

On December 31, 2018, when the market interest rate is 8%, Biggs Realty issues

\(450,000 of 5.25%, 10-year bonds payable. The bonds pay interest semiannually. The

present value of the bonds at issuance is \)365,732.

Requirements

1. Prepare an amortization table using the effective interest amortization method for

the first two semiannual interest periods. (Round to the nearest dollar.)

2. Using the amortization table prepared in Requirement 1, journalize issuance of the

bonds and the first two interest payments.

Short Answer

Expert verified

The carrying amount of the bond is $375,165.

Step by step solution

01

Definition of bonds

The bond is anagreement between the individual who lent the amount and individual who receive the amount as loan.

02

Amortization test

Date

Cash Paid

Interest Expense

Discount Amortized

Carrying Amount

12-31-2018

$365,732

06-30-2019

$11,812

$14,630

$2,818

$368,550

12-31-2019

$11,812

$18,427

$6,615

$375,165

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Most popular questions from this chapter

Reporting liabilities on the balance sheet and computing debt toequity ratio.The accounting records of Pack Leader Wireless include the following as ofDecember 31, 2018:

Accounts Payable \( 77,000 Salaries Payable \) 7,500

Mortgages Payable (long-term) 73,000 Bonds Payable (current portion) 25,000

Interest Payable 18,000 Premium on Bonds Payable 10,000

Bonds Payable (long-term) 63,000 Unearned Revenue (short-term) 2,700

Total Stockholders’ Equity 140,000

Requirements

1. Report these liabilities on the Pack Leader Wireless balance sheet, includingheadings and totals for current liabilities and long-term liabilities.

2. Compute Pack Leader Wireless’s debt to equity ratio at December 31, 2018.

What are the two categories of liabilities reported on the balance sheet? Provide

examples of each.

Weaver Corporation includes the following selected accounts in its general ledger on December 31, 2018:

Notes Payable (long-term) \( 75,000 Interest Payable (due next year) \) 720

Bonds Payable (long-term) 195,000 Sales Tax Payable 480

Accounts Payable 20,400 Premium on Bonds Payable 5,850

Salaries Payable 1,680 Estimated Warranty Payable 1,080

Prepare the liabilities section of Weaver Corporation’s balance sheet at December 31, 2018.

What is a bond payable?

Analyzing and journalizing bond transactions

On January 1, 2018, Educators Credit Union (ECU) issued 8%, 20-year bonds payablewith face value of $1,000,000. These bonds pay interest on June 30 and December 31.The issue price of the bonds is 109.Journalize the following bond transactions:

a. Issuance of the bonds on January 1, 2018.

b. Payment of interest and amortization on June 30, 2018.

c. Payment of interest and amortization on December 31, 2018.

d. Retirement of the bond at maturity on December 31, 2037, assuming the lastinterest payment has already been recorded.
See all solutions

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