Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 14: Q6BE (page 753)

On January 1, 2017, JWS Corporation issued \(600,000 of 7% bonds, due in 10 years. The bonds were issued for \)559,224, and pay interest each July 1 and January 1. JWS uses the effective-interest method. Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. Assume an effective-interest rate of 8%

Short Answer

Expert verified

The total for both the debit and credit sides is $644,792.68.

Step by step solution

01

Meaning of Coupon Bond

Bonds that pay periodic interest amount to the bondholder atequal frequency is coupon bond. Interest paid on bond at stated coupon rate.

02

Journal Entries

Date

Accounts and Explanation

Debit

Credit

January 1, 2017

Cash

$559,224

Discount on bonds payable

$40,776

Bonds Payable

$600,000

July 1, 2017

Interest expenses (559,224 x 8% x 1/2)

$22,368.96

Cash

$21,000.00

Discount on Bonds Payable

$1,368.96

December 31, 2017

Interest expenses

$22,423.72

Interest Payable

$21,000

Discount on Bonds Payable

$1,423.72

Working:

Discount on bonds payable on January 1= ($600,000-$559,224) = $40,776

Interest expenses on July 1 = ($559,224 x 8% x 1/12) = $22,368.96

Interest paid in cash paid on July 1= ($600,000 x 7% x 1/2) = $21,000.

Interest expenses on December 31 = {(559,224 +$1,368.96) x 8% x 1/2} = $22,423.72

Interest payable on December 31, 2017 = ($600,000 x 7% x 1/2) = $21,000

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

(b) What type of concessions might a creditor grant the debtor in a troubled-debt situation?

BE14-2 (L01) The Colson Company issued $300,000 of 10% bonds on January 1, 2017. The bonds are due January 1, 2022, with interest payable each July 1 and January 1. The bonds are issued at face value. Prepare Colson’s journal entries for (a) the January issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.

Question: Under what circumstances would a transaction be recorded as a troubled-debt restructuring by only one of the two parties to the transaction?

Fallen Company commonly issues long-term notes payable to its various lenders. Fallen has had a pretty good credit rating such that its effective borrowing rate is quite low (less than 8% on an annual basis). Fallen has elected to use the fair value option for the long-term notes issued to Barclay’s Bank and has the following data related to the carrying and fair value for these notes. Any changes in fair value are due to changes in market rates, not credit risk.

Carrying Value

Fair Value

December 31, 2017

\(54,000

\)54,000

December 31, 2018

44,000

42,500

December 31, 2019

36,000

38,000

Instructions

(a) Prepare the journal entry at December 31 (Fallen’s year-end) for 2017, 2018, and 2019, to record the fair value option for these notes.

(b) At what amount will the note be reported on Fallen’s 2018 balance sheet?

(c) What is the effect of recording the fair value option on these notes on Fallen’s 2019 income?

(d) Assuming that general market interest rates have been stable over the period, does the fair value data for the notes indicate that Fallen’s creditworthiness has improved or declined in 2019? Explain.

On January 1, 2017, Margaret Avery Co. borrowed and received $400,000 from a major customer evidenced by a zero-interest-bearing note due in 3 years. As consideration for the zero-interest-bearing feature, Avery agrees to supply the customer’s inventory needs for the loan period at lower than the market price. The appropriate rate at which to impute interest is 8%.

Instructions


(a) Prepare the journal entry to record the initial transaction on January 1, 2017. (Round all computations to the nearest dollar.)

(b) Prepare the journal entry to record any adjusting entries needed at December 31, 2017. Assume that the sales of Avery’s product to this customer occur evenly over the 3-year period.
See all solutions

Recommended explanations on Business Studies Textbooks

Operational Management

Read Explanation

Managers

Read Explanation

Influences On Business

Read Explanation

Managerial Economics

Read Explanation

Intermediate Accounting

Read Explanation

Corporate Finance

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