Payroll Taxes and Bond Interest Journal Entries
Not what you're looking for?
E10-6 According to the accountant of Ulner Inc., its payroll taxes for the week were as follows: $198.40 for FICA taxes, $19.84 for federal unemployment taxes, and $133.92 for state unemployment taxes.
Record accrual of payroll taxes.
Instructions-- Journalize the entry to record the accrual of the payroll taxes.
Payroll Tax Expense $352.16
FICA Taxes Payable $198.40
Federal Unemployment Taxes Payable $19.84
State Unemployment Taxes Payable $133.92
(To Record Payable Taxes for the week)
E10-8 Jim Thome has prepared the following list of statements about bonds.
Evaluate statements about bonds.
Instructions identify each statement above as true or false. If false, indicate how to correct the statement.
1. Bonds are a form of interest-bearing notes payable. - True
2. When seeking long-term financing, an advantage of issuing bonds over issuing common stock is that stockholder control is not affected. - True
3. When seeking long-term financing, an advantage of issuing common stock over issuing bonds is that tax savings result. - False
4. Secured bonds have specific assets of the issuer pledged as collateral for the bonds. - True
5. Secured bonds are also known as debenture bonds. - False
6. Bonds that mature in installments are called term bonds. - False
7. A conversion feature may be added to bonds to make them more attractive to bond buyers. - True
8. The rate used to determine the amount of cash interest the borrower pays is called the stated rate. - True
9. Bond prices are usually quoted as a percentage of the face value of the bond. - True
10. The present value of a bond is the value at which it should sell in the marketplace. - True
*E10-18 Hrabik Corporation issued $600,000, 9%, 10-year bonds on January 1, 2011, for $562,613.This price resulted in an effective-interest rate of 10% on the bonds. Interest is payable semiannually on July 1 and January 1. Hrabik uses the effective-interest method to amortize bond premium or discount.
(a) The issuance of the bonds.
Cash = $562,613
Discount on Bonds Payable = $37,387
Bonds Payable = $600,000
(b) The payment of interest and the discount amortization on July 1, 2011, assuming that interest was not accrued on June 30.
Interest Expense ($562,613*.05) = $28,131
Discount on Bonds Payable = $1,131
Cash ($600,000*.09*.50) = $27,000
(c) The accrual of interest and the discount amortization on December 31, 2011.
Interest Expense {($562,613+1,131)*.05} = $57,738
Discount on Bonds Payable = $1,187
Cash ($600*.09*1) = $2,700
P10-3A On May 1, 2011, Newby Corp. issued $600,000, 9%, 5-year bonds at face value. The bonds were dated May 1, 2011, and pay interest semiannually on May 1 and November 1. Financial statements are prepared annually on December 31.
Prepare entries to record issuance of bonds, interest accrual, and bond redemption.
(d) Int. exp. = $18,000
(f) Loss = $12,000
Instructions
(a) Prepare the journal entry to record the issuance of the bonds.
Cash = $600,000
Bonds Payable = $600,000
(b) Prepare the adjusting entry to record the accrual of interest on December 31, 2011.
Interest Expense ($600,000*.09*1.67) = $9,000
Interest Payable = $9,000
(c) Show the balance sheet presentation on December 31, 2011.
Current Liabilities:
Bond Interest Payable = $9,000
Long -Term Liabilities:
Bonds Payable (Due 2016) = $600,000
(d) Prepare the journal entry to record payment of interest on May 1, 2012, assuming no accrual of interest from January 1, 2012, to May 1, 2012.
Interest Expense ($600,000*.09*.3333333) = $18,000
Interest Payable = $9,000
Cash = $27,000
(e) Prepare the journal entry to record payment of interest on November 1, 2012.
Interest Expense ($600,000*.09*.50) = $27,000
Cash = $27,000
(f) Assume that on November 1, 2012, Newby calls the bonds at 102. Record the redemption of the bonds.
Bonds Payable = $600,000
Loss on Bond Redemption = $12,000
Cash ($600,000*1.02) = $612,000
*P10-6A On July 1, 2011, Atwater Corporation issued $2,000,000 face value, 10%, 10-year bonds at $2,271,813.This price resulted in an effective-interest rate of 8% on the bonds. Atwater uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest July 1 and January 1.
Prepare entries to record issuance of bonds, payment of interest, and amortization of bond premium using effective-interest method.
(c) Amortization = $9,127
(d) Amortization = $9,493
(e) Amortization = $9,872
Instructions (Round all computations to the nearest dollar.)
P10-6A: On July 1, 2011, Atwater Corporation issued $2,000,000 face value, 10%, 10-year bonds at $2,271,813.This price resulted in an effective-interest rate of 8% on the bonds. Atwater uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest July 1 and January 1.
(a) Prepare the journal entry to record the issuance of the bonds on July 1, 2011.
Cash = $2,271,813
Bonds Payable = $2,000,000
Premium on Bonds Payable = $271,813
(b) Prepare an amortization table through December 31, 2012 (3 interest periods) for this bond issue.
Semi-
annual
Interest
Periods
(A)
Interest
to Be
Paid (B)
Interest
Expense (C)
Premium
Amor-
tization
(A) - (B) (D)
Unamor-
tized
Premium
(D) - (C) (E)
Bond
Carrying
Value
($2,000,000 + D)
Issue date
1
2
3
$100,000
100,000
100,000
$90,873
90,507
90,128
$9,127
9,493
9,872 $271,813
262,686
253,193
243,321 $2,271,813
2,262,686
2,253,193
2,243,321
(c) Prepare the journal entry to record the accrual of interest and the amortization of the premium on December 31, 2011.
Interest Expense ($2,271,813*.04) = $90,873
Premium on Bonds Payable = $9,127
Interest Payable ($2,000,000*.05) = $100,000
(d) Prepare the journal entry to record the payment of interest and the amortization of the premium on July 1, 2012, assuming no accrual of interest on June 30.
Interest Expense {($2,271,813-$9,127)*.04} = $90,507
Premium on Bond Payable = $9,493
Cash = $100,000
(e) Prepare the journal entry to record the accrual of interest and the amortization of the premium on December 31, 2012.
Interest Expense {($2,262,686 - $9,493)*.04} = $90,128
Premium on Bonds Payable = $9,872
Bond Interest Payable = $100,000
Purchase this Solution
Solution Summary
This solution illustrates how to record the payroll tax accrual and how to account for issuing bonds, paying periodic interest, amortizing the premium or discount, and redeeming the bonds. It also illustrates how to prepare an amortization table.
Solution Preview
E10-6 According to the accountant of Ulner Inc., its payroll taxes for the week were as follows: $198.40 for FICA taxes, $19.84 for federal unemployment taxes, and $133.92 for state unemployment taxes.
Record accrual of payroll taxes.
Instructions-- Journalize the entry to record the accrual of the payroll taxes.
Payroll Tax Expense $352.16
FICA Taxes Payable $198.40
Federal Unemployment Taxes Payable $19.84
State Unemployment Taxes Payable $133.92
(To Record Payable Taxes for the week)
E10-8 Jim Thome has prepared the following list of statements about bonds.
Evaluate statements about bonds.
Instructions identify each statement above as true or false. If false, indicate how to correct the statement.
1. Bonds are a form of interest-bearing notes payable. - True
2. When seeking long-term financing, an advantage of issuing bonds over issuing common stock is that stockholder control is not affected. - True
3. When seeking long-term financing, an advantage of issuing common stock over issuing bonds is that tax savings result. - False
4. Secured bonds have specific assets of the issuer pledged as collateral for the bonds. - True
5. Secured bonds are also known as debenture bonds. - False
6. Bonds that mature in installments are called term bonds. - False
7. A conversion feature may be added to bonds to make them more attractive to bond buyers. - True
8. The rate used to determine the amount of cash interest the ...
Purchase this Solution
Free BrainMass Quizzes
Accounting: Statement of Cash flows
This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.
SWOT
This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.
Team Development Strategies
This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.
Business Ethics Awareness Strategy
This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.
Understanding the Accounting Equation
These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.