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Accounting for Bonds

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1) Ghostbusters Corporation issues $300,000 of 9% bonds, due in 10 years, with interest payable semiannually. At the time of issue, the market rate for such bonds is 10%. Computer the issue price of the bonds.

2) Toy Story Corporation issued $500,000 of 6% bonds on May 1, 2008. The bonds were dated January 1, 2008, and mature January 1, 2013, with interest payable July 1 and January 1. The bonds were issued at face value plus accrued interest. Prepare Toy Story's journal entries for the May 1 issuance, the July 1 interest payment, and the December 31 adjusting entry.

3) On January 1, 2008, Qix Corporation issued $400,000 of 7% bonds, due in 10 years. The bonds were issued for $372,816, and pay interest each July 1 and January 1. Qix uses the effective interest method. Prepare the company's journal entries for the January 1 issuance, the July 1 interest payment, and the December 31 adjusting entry. Assume an effective interest rate of 8%.

4) On January 1,2008, Uncharted Waters Corporation retired $600,000, of bonds at 99. At the time of retirement, the unamortized premium was $15,000 and unamortized bond issue costs were $5,250. Prepare the corporation's journal entry to record the reacquisition of the bonds.

5) The Goofy Company issued $200,000 of 10% bonds on January 1, 2008. The bonds are due January 1, 2013 with interest payable July 1 and January 1. Assume the bonds were issued at 98. Prepare the journal entries for January 1, July 1, and December 31. The company uses straight line amortization annually on December 31.

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1) Ghostbusters Corporation issues $300,000 of 9% bonds, due in 10 years, with interest payable semiannually. At the time of issue, the market rate for such bonds is 10%. Computer the issue price of the bonds.

The issue price will be the present value of interest and principal. The rate is 5% and the time period is 20. Interest is an annuity and so we use the PVIFA table. For 5% and 20 periods, the factor is 12.46221. For principal we use the PVIF table and the factor for 5% and 20 periods is 0.37689

Present value of the principal
$300,000 X .37689 $113,067
Present value of the interest payments
$13,500 X 12.46221 168,240
Issue price $281,307

2) Toy Story Corporation issued $500,000 of 6% bonds on May 1, 2008. The bonds were dated January 1, 2008, and mature January 1, 2013, with interest payable July 1 and January 1. The bonds were issued at face value plus accrued interest. Prepare ...

Solution Summary

The solution explains various questions relating to accounting for bond transactions.

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