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Chapter 12: Q7RQ (page 654)
When does a premium on bonds payable occur?
The stated interest rate is an interest that the issuer of the bonds provides.
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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).
Retiring bonds payable before maturity
On January 1, 2018, Powell Company issued $350,000 of 10%, five-year bonds
payable
at 102. Powell Company has extra cash and wishes to retire the bonds payable
on
January 1, 2019, immediately after making the second semiannual interest
payment. To
retire the bonds, Powell Company pays the market price of 98.
Requirements
1. What is Powell Company’s carrying amount of the bonds payable on the
retirement
date?
2. How much cash must Powell Company pay to retire the bonds payable?
3. Compute Powell Company’s gain or loss on the retirement of the bonds
payable.
What is the difference betwee the stated interest rate and the market interest rate?
Determining the present value of bonds payable
Interest rates determine the present value of future amounts. (Round to the nearest
dollar.)
Requirements
1. Determine the present value of 10-year bonds payable with face value of $86,000
and stated interest rate of 14%, paid semiannually. The market rate of interest is
14% at issuance.
2. Same bonds payable as in Requirement 1, but the market interest rate is 16%.
3. Same bonds payable as in Requirement 1, but the market interest rate is 12%.
On January 1, 2018, when the market interest rate is 6%, Hawkins Corporation issues \(200,000 of 8%, five-year bonds payable. The bond pay interest semianually. Hawkins Corporation recieved \)217,040 in cash at issuance. Assume interest payment dates are June 30 and December 31. Prepare an effective-intesret amortization method amortization table for the first two semiannual interest periods.
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