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Bond Issue, Interest Expenses - Journal Entry

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On March 1, 2011, Stratford Lighting issued 14% bonds, dated March 1, with a face amount of $400,000. The bonds sold for $392,000 and mature on February 28, 2036 (25 years). Interest is paid semiannually on August 31 and February 28. Stratford uses the straight-line method and its fiscal year ends December 31.

1. Prepare the journal entry to record interest on August 31, 2011.

2. Prepare the journal entry to accrue interest on December 31, 2011. (Do not round intermediate calculations. Round your answers to the nearest dollar amount.)

3. Prepare the journal entry to record interest on February 28, 2012. (Do not round intermediate calculations. Round your answers to the nearest dollar amount.)

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Workings....

The Journal Entry on March 1, 2011 will be

Debit Cash $392,000
Debit Discount on Bonds $8,000
Credit 14% Bonds Payables $400,000

Since discount is amortised on straight line basis, a fixed amount will be amortised when coupon payment are made. The total no. of coupon payments are 50 (25 years * 2 payment).

Discount to be ...

Solution Summary

The solution provides for journal entry to record interest, bond issue for Stratford Lighting.

$2.19
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Payroll Taxes and Bond Interest Journal Entries

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

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