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Chapter 12: Q25E_4 (page 661)

Journalizing bond issuance and interest payments

On January 1, 2018, Roberts Unlimited issues 8%, 20-year bonds payable with a

face value of $240,000. The bonds are issued at 104 and pay interest on June 30 and

December 31.

Requirements

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

2. Journalize the semiannual interest payment and amortization of bond premium on

June 30, 2018.

3. Journalize the semiannual interest payment and amortization of bond premium on

December 31, 2018.

4. Journalize the retirement of the bond at maturity, assuming the last interest payment

has already been recorded. (Give the date).

Short Answer

Expert verified

The bonds payable account is debited with $240,000, and the cash account is credited with $240,000.

Step by step solution

01

Definition of bonds issue on premium

When the bonds are issued greater than the market interest rate, then the bonds are known as the bond issue on premium.

02

Journal entry for the retirement

Date

Particulars

Debit

Credit

January 1, 2038

8% Bonds Payable

$240,000

Cash

$240,000

(To record the retirement of the bond)

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Most popular questions from this chapter

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.

On December 31, 2018, when the market interest rate is 8%, Arnold Corporation issues $200,000 of 6%, 10 year-bonds payable. The bonds pay interest semiannually. Determine the present value of the bonds at issuance.

Bond prices depend on the market rate of interest, stated rate of interest,and time.

Requirements

1. Compute the price of the following 8% bonds of Country Telecom.

a. \(100,000 issued at 75.25

b. \)100,000 issued at 103.50

c. \(100,000 issued at 94.50

d. \)100,000 issued at 103.25

2. Which bond will Country Telecom have to pay the most to retire at maturity?

Explain your answer.

What type of account is Premium on Bonds Payable? What is its normal balance? Is it added to or subtracted from the Bonds Payable account to determine the carrying amount?

Determining the present value of bonds payable and journalizingusing the effective-interest amortization methodBrad Nelson, Inc. issued \(600,000 of 7%, six-year bonds payable on January 1, 2018.

The market interest rate at the date of issuance was 6%, and the bonds pay interestsemiannually.

Learning Objectives 2, 3, 4

3. June 30, 2018, InterestExpense \)25,200

Learning Objectives 2, 3, 4

June 30, 2018, Interest Expense$37,750

C H A P T E R 1 2

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 secondpayments of the semiannual interest amount and amortization of the bonds onJune 30, 2018, and December 31, 2018. Explanations are not required.
See all solutions

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