Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 12: Q35PGA_a (page 664)

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.

Short Answer

Expert verified

Cash debited by $1,090,000, 8% bond payable credited by $1,000,000 and premium on bond payable credited by $90,000.

Step by step solution

01

Definition of bond issued at premium

The bonds will be issued at a premium because the stated interest rate is greater than the market interest rate

02

Entry for the issue of bonds payable

Date

Particulars

Debit

Credit

January 1, 2018

Cash

$1,090,000

8% Bonds Payable

$1,000,000

Premium on Bonds Payable

$90,000

(Being entry for the issue of bonds)

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

Analyzing, journalizing, and reporting bond transactions

Danny’s Hamburgers issued 6%, 10-year bonds payable at 90 on December 31, 2018.

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

Long-term Liabilities:

Bonds Payable \( 600,000

Less: Discount on Bonds Payable (48,000) \) 552,000

Danny’s pays semiannual interest each June 30 and December 31.

Requirements

1. Answer the following questions about Danny’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.

What is the journal entry to retire bonds at maturity?

Preparing an amortization schedule and recording mortgages payable

entries

Kellerman Company purchased a building and land with a fair market value of

\(550,000 (building, \)425,000, and land, \(125,000) on January 1, 2018. Kellerman

signed a 20-year, 6% mortgage payable. Kellerman will make monthly payments of

\)3,940.37. Round to two decimal places. Explanations are not required for journal

entries.

Requirements

1. Journalize the mortgage payable issuance on January 1, 2018.

2. Prepare an amortization schedule for the first two payments.

3. Journalize the first payment on January 31, 2018.

4. Journalize the second payment on February 28, 2018.

When does a premium on bonds payable occur?

Accounting for long-term notes payable transactions

Consider the following note payable transactions of Caleb Video Productions.

2018

Oct. 1 Purchased equipment costing \(80,000 by issuing a five-year, 8% note

payable. The note requires annual principal payments of \)16,000 plus

interest each October 1.

Dec. 31 Accrued interest on the note payable.

2019

Oct. 1 Paid the first installment on the note.

Dec. 31 Accrued interest on the note payable.

Requirements

1. Journalize the transactions for the company.

2. Considering the given transactions only, what are Caleb Video Productions’ total

liabilities on December 31, 2019?
See all solutions

Recommended explanations on Business Studies Textbooks

Strategic Analysis

Read Explanation

Influences On Business

Read Explanation

Corporate Finance

Read Explanation

Introduction to Business

Read Explanation

Nature of Business

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