Journal Entries - Bonds

Heathrow issues $2,000,000 of 6%, 15-year bonds dated January 1, 2004, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $1,728,224.

Required

1. Prepare the January 1, 2004, journal entry to record the bonds' issuance.
2. For each semiannual period, compute (a) the cash payment, (b) the straight-line discount amortization,
and (c) the bond interest expense.
3. Determine the total bond interest expense to be recognized over the bonds' life.
4. Prepare the first two years of an amortization table like Exhibit 14.7 using the straight-line method.
5. Prepare the journal entries to record the first two interest payments.
6. Assume that the bonds are issued at a price of $2,447,990. Repeat parts 1 through 5.

This question has the following supporting file(s):

acc226_appendix_e.xls

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Solution Summary

The solution explains the accounting relating to bonds

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Extracted Content from Question Files:

acc226_appendix_e.xls

Student Name:
Class:
Problem 14-02A

HEATHROW
General Journal
Part 1.
Trans.
Date Account Titles no. Debit Credit
2004
Jan 1 Cash
Discount on Bonds Payable
Bonds Payable

Part 2.

Cash payment
Straight-line discount amortization
Bond interest expense

Part 3.

Thirty payments of $60,000
Par value at maturity
Total repaid
Less amount borrowed
Total bond interest expense

or:

Thirty payments of $60,000
Plus discount
Total bond interest expense

Part 4.
HEATHROW

Unamortized Carrying
Semiannual Interest Period Discount Value

1/1/2004
6/30/2004
12/31/2004
6/30/2005
12/31/2005

HEATHROW
Student Name:
Class:
Problem 14-02A

General Journal
Part 5.
Trans.
Date Account Titles no. Debit Credit
2004
Jun 30 Bond Interest Expense
Discount on Bonds Payable
Cash

Dec 31 Bond Interest Expense
Discount on Bonds Payable
Cash

HEATHROW
General Journal
Part 6-1.
Trans.
Date Account Titles no. Debit Credit
2004
Jan 1 Cash
Premium on Bonds Payable
Bonds Payable

Part 6-2.

Cash payment
Straight-line premium amortization
Bond interest expense
Student Name:
Class:
Problem 14-02A

Part 6-3.

Thirty payments of $60,000
Par value at maturity
Total repaid
Less amount borrowed
Total bond interest expense

or:

Thirty payments of $60,000
Less premium
Total bond interest expense

Part 6-4.
HEATHROW

Unamortized Carrying
Semiannual Interest Period Premium Value

1/1/2004
6/30/2004
12/31/2004
6/30/2005
12/31/2005

HEATHROW
General Journal
Part 6-5.
Trans.
Date Account Titles no. Debit Credit
2004
Jun 30 Bond Interest Expense
Premium on Bonds Payable
Cash

Dec 31 Bond Interest Expense
Premium on Bonds Payable
Cash
Given Data P14-02A:

HEATHROW

Bonds issued, face value $ 2,000,000
Annual interest 6%
Maturity in years 15
Issuance price 1,728,224
Issue price for Part 6 $ 2,447,990

Check figures:
(3) $ 2,071,776
(4) 12/31/2005 carrying value 1,764,460
Student Name:
Class:
Problem 14-03A

SATURN

Part 1.

Ten payments of $16,250
Par value at maturity
Total repaid
Less amount borrowed
Total bond interest expense

or:

Ten payments of $16,250
Less premium
Total bond interest expense

Part 2.
SATURN

Semiannual
Interest Unamortized Carrying
Period-End Premium Value
1/1/2004
6/30/2004
12/31/2004
6/30/2005
12/31/2005
6/30/2006
12/31/2006
6/30/2007
12/31/2007
6/30/2008
12/31/2008

SATURN
General Journal
Part 3
Trans.
Date Account Titles no. Debit Credit
2004
June 30 Bond Interest Expense
Premium on Bonds Payable
Cash

Dec. 31 Bond Interest Expense
Premium on Bonds Payable
Cash
Given Data P14-03A:

SATURN

Bonds issued, par value $ 500,000
Annual interest 6.5%
Maturity in years 5
Issuance price $ 510,666
Market interest rate 6%

Check figure:
(2) Carrying value $ 505,331
Student Name:
Class:
Problem 14-06A

PATTON
General Journal
Part 1.
Trans.
Date Account Titles no. Debit Credit
2002
Jan 1 Cash
Discount on Bonds Payable
Bonds Payable

Part 2.

Eight payments of $16,250
Par value at maturity
Total repaid
Less amount borrowed
Total bond interest expense

or:

Eight payments of $16,250
Plus discount
Total bond interest expense

Part 3.
PATTON

Semiannual Cash Bond
Interest Interest Interest Discount Unamortized Carrying
Period Paid Expense Amortization Discount Value
1/1/2004
6/30/2004
12/31/2004
6/30/2005
12/31/2005

PATTON
General Journal
Part 4
Trans.
Date Account Titles no. Debit Credit
2004
June 30 Bond Interest Expense
Discount on Bonds Payable
Cash

Dec. 31 Bond Interest Expense
Discount on Bonds Payable
Cash
Given Data P14-06A:

PATTON

Bonds issued, face value $ 600,000
Annual interest 5%
Maturity in years 4
Issuance price $ 584,361
Market interest rate 8%

Check figures:
(2) $ 195,639
(3) Carrying value 614,614
Student Name:
Class:
Problem 14-07A

McFAD
General Journal
Part 1.
Trans.
Date Account Titles no. Debit Credit
2004
Jan 1 Cash
Premium on Bonds Payable
Bonds Payable

Part 2.

Eight payments of $4,950
Par value at maturity
Total repaid
Less amount borrowed
Total bond interest expense

or:

Eight payments of $4,950
Less premium
Total bond interest expense

Part 3.
McFAD

Semiannual Cash Bond
Interest Interest Interest Premium Unamortized Carrying
Period Paid Expense Amortization Premium Value
1/1/2004
6/30/2004
12/31/2004
6/30/2005
12/31/2005

McFAD
General Journal
Part 4
Trans.
Date Account Titles no. Debit Credit
2004
June 30 Bond Interest Expense
Premium on Bonds Payable
Cash

Dec. 31 Bond Interest Expense
Premium on Bonds Payable
Cash

Part 5

2004
Student Name:
Class:
Problem 14-07A

June 30 Bond Interest Expense
Premium on Bonds Payable
Cash
Gain on Retirement of Bonds

Part 6: Assume that the market rate on January 1, 2004, is 12% instead of
10%. Without presenting numbers, describe how this change affects amounts
reported on McFad's financial statements.
Given Data P14-07A:

McFAD

Bonds issued, face value $ 90,000
Annual interest 11%
Maturity in years 3
Issuance price $ 92,283
Market interest rate 10%

Check figures:
(3) Carrying value $ 91,224
(5) Gain 2,635