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Chapter 12: Q26E_2 (page 661)

Retiring bonds payable before maturity

CoastalView Magazineissued $600,000 of 15-year, 5% callable bonds payable on July31, 2018, at 94. On July 31, 2021, CoastalViewcalled the bonds at 101. Assume annualinterest payments.

Requirements

1. Without making journal entries, compute the carrying amount of the bonds payableat July 31, 2021.

2. Assume all amortization has been recorded properly. Journalize the retirement ofthe bonds on July 31, 2021. No explanation is required.

Short Answer

Expert verified

The bonds payable and loss on the retirement of the bonds is debited by $600,000 and $34,800.The discount on bonds payable and cash is credited by $28,800 and $606,000.

Step by step solution

01

Calculation of the carrying amount of bonds payable

Date

Particulars

Debit

Credit

July 31, 2021

Bonds payable

$600,000

Loss on Retirement of Bonds

$34,800

Discount on Bonds Payable

$28,800

Cash

$606,000

(To record the retirement of the bonds)

02

Working Notes:

DiscountAllowed=ParValue-IssuedPrice=$600,000-$600,000×94100=$36,000

DiscountAmortizeTill31July=DiscountAllowedMaturityPeriod×NumberofYears=$36,00015=$2,400×3=$7,200

ReminingDiscount=Totaldiscount-DiscountAmortizeTill31July=$36,000-$7,200=$28,800

CashPayableatMaturity=ParValue×$101100=$600,000×$101100=$606,000

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Most popular questions from this chapter

Preparing the liabilities section of the balance sheet

Luxury Suites Hotels includes the following selected accounts in its general ledger at

December 31, 2018:

Notes Payable (long-term) \( 200,000 Accounts Payable \) 33,000

Bonds Payable (due 2022) 450,000 Discount on Bonds Payable 13,500

Interest Payable (due next year) 1,000 Salaries Payable 2,600

Estimated Warranty Payable 1,300 Sales Tax Payable 400

Prepare the liabilities section of Luxury Suites’s balance sheet at December 31, 2018.

Journalizing bond issuance and interest payments

On January 1, 2018, Roberts Unlimited issues 8%, 20-year bonds payable with aface value of $240,000. The bonds are issued at 104 and pay interest on June 30 andDecember 31.

Requirements

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

2. Journalize the semiannual interest payment and amortization of bond premium onJune 30, 2018.

3. Journalize the semiannual interest payment and amortization of bond premium onDecember 31, 2018.

4. Journalize the retirement of the bond at maturity, assuming the last interest paymenthas already been recorded. (Give the date).

Journalizing liability transactions and reporting them on the balance sheet

The following transactions of Great Value Pharmacies occurred during 2018 and 2019:

2018

Mar. 1 Borrowed \(390,000 from Bartow Bank.The six-year, 13% note requires payments due annually, on March 1. Each payment consists of \)65,000 principal plus one year’s interest.

Dec. 1 Mortgaged the warehouse for \(350,000 cash with Saylor Bank. The mortgagerequires monthly payments of \)7,000. The interest rate on the note is 9% andaccrues monthly. The first payment is due on January 1, 2019.

31 Recorded interest accrued on the Saylor Bank note.

31 Recorded interest accrued on the Bartow Bank note.

2019

Jan. 1 Paid Saylor Bank monthly mortgage payment.

Feb. 1 Paid Saylor Bank monthly mortgage payment.

Mar. 1 Paid Saylor Bank monthly mortgage payment.

1 Paid first installment on note due to Bartow Bank.

Requirements

1. Journalize the transactions in the Great Value Pharmacies general journal. Roundto the nearest dollar. Explanations are not required.

2. Prepare the liabilities section of the balance sheet for Great Value Pharmacies onMarch 1, 2019 after all the journal entries are recorded.

Describing bonds, journalizing transactions for bonds payable using the straight-line amortization method, and journalizing transactions for a mortgage payable

This problem continues the Canyon Canoe Company situation from Chapter 11. Canyon Canoe Company is considering raising additional capital for further expansion. The company wants to finance a new business venture into guided trips down the Amazon River in South America. Additionally, the company wants to add another building on their land to offer more services for local customers. Canyon Canoe Company plans to raise the capital by issuing \(210,000 of 7.5%, six-year bonds on January 2, 2020. The bonds pay interest semiannually on June 30 and December 31. The company receives \)208,476 when the bonds are issued.

The company also issues a mortgage payable for \(450,000 on January 2, 2020. The proceeds from the mortgage will be used to construct the new building. The mortgage requires annual payments of \)45,000 plus interest for ten years, payable on December 31. The mortgage interest rate is 8%.

Requirements

1. Will the bonds issue at face value, a premium, or a discount?

2. Record the following transactions. Include dates and round to the nearest dollar. Omit explanations.

a. Cash received from the bond issue.

b. Cash received from the mortgage payable.

c. Semiannual bond interest payments for 2020. Amortize the premium or discount using the straight-line amortization method.

d. Payment on the mortgage payable for 2020.

3. Calculate the total interest expense incurred in 2020.

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).
See all solutions

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