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Chapter 12: Q16SE_2 (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 cash account is debited with $365,732, and the 8% bond payableaccount is credited with $365,732.

Step by step solution

01

Definition of journal entry

Journal entry is the primary entry which is made by the accountant in the books of accounts to record the transactions.

02

Journal entries and the payment of interest  

Date

Particulars

Debit

Credit

December 31, 2018

Cash

$365,732

8% Bonds Payable

$365,732

(Being issue entry of the bonds)

June 30, 2019

Interest Expense

$14,630

Discount on Bonds

$2,818

Cash

$11,812

(Being entry for the payment of interest)

December 31, 2019

Interest Expense

$18,427

Discount on Bonds

$6,615

Cash

$11,812

(Being entry for the payment of interest)

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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 is a mortgage payable?

Accounting for a long-term note payable

On January 1, 2018, Lakeman-Fay signed a \(1,500,000, 15-year, 7% note. The loan

required Lakeman-Fay to make annual payments on December 31 of \)100,000

principal plus interest.

Requirements

1. Journalize the issuance of the note on January 1, 2018.

2. Journalize the first note payment on December 31, 2018.

Journalizing liability transactions and reporting them on the balance

sheet

The following transactions of Johnson Pharmacies occurred during 2018 and 2019:

2018

Mar. 1 Borrowed \(450,000 from Coconut Creek Bank. The 15-year, 5% note requires

payments due annually, on March 1. Each payment consists of \)30,000 principal

plus one year’s interest.

Dec. 1 Mortgaged the warehouse for \(250,000 cash with Saputo Bank. The mortgage

requires monthly payments of \)8,000. The interest rate on the note is 12% and

accrues monthly. The first payment is due on January 1, 2019.

31 Recorded interest accrued on the Saputo Bank note.

31 Recorded interest accrued on the Coconut Creek Bank note.

2019

Jan. 1 Paid Saputo Bank monthly mortgage payment.

Feb. 1 Paid Saputo Bank monthly mortgage payment.

Mar. 1 Paid Saputo Bank monthly mortgage payment.

1 Paid first installment on note due to Coconut Creek Bank.

Requirements

1. Journalize the transactions in the Johnson Pharmacies general journal. Round to

the nearest dollar. Explanations are not required.

2. Prepare the liabilities section of the balance sheet for Johnson Pharmacies on

March 1, 2019 after all the journal entries are recorded.

Computing the debt to equity ratio

Ludwig Corporation has the following data as of December 31, 2018:

Total Current Liabilities \( 36,210 Total Stockholders’ Equity \) ?

Total Current Assets 58,200 Other Assets 36,800

Long-term Liabilities 139,630 Property, Plant, and Equipment, Net 206,440

Compute the debt to equity ratio at December 31, 2018.
See all solutions

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