Explore BrainMass
Share

Bond transactions

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

See excel for better formatting.

Peru Corporation sold $1,500,000 6% 10 -year bonds on January 1, 2007. The bonds were
dated January 1, 2007, and pay interest on January 1. Peru Corporation uses the straight-line method to amortize bond premium or discount.

Instructions:
(a) Prepare all the necessary journal entries to record the issuance of the bonds and bond interest expense for 2007,
assuming that the bonds sold at 103

Jan 1 Account title Amount
Account title Amount
Account title Amount

Dec 31 Account title Amount
Account title Amount
Bond Interest Payable Amount

(b) Prepare journal entries as in part (a) assuming that the bonds sold at 98

Jan 1 Account title Amount
Account title Amount
Account title Amount

Dec 31 Account title Amount
Account title Amount
Account title Amount

(c) Show the balance sheet presentation for the bond issue at December 31, 2007, using
(1) the 103 selling price, and then
Current Liabilities
Account title Amount

Long-term Liabilities
Account title Amount
Account title Amount Formula

(2) the 98 selling price.
Current Liabilities
Account title Amount

Long-term Liabilities
Account title Amount
Account title Amount Formula

© BrainMass Inc. brainmass.com October 25, 2018, 3:36 am ad1c9bdddf
https://brainmass.com/business/journal-entries/bond-transactions-346582

Attachments

Solution Summary

The solution explains the journal entries relating to bond transactions

$2.19
See Also This Related BrainMass Solution

Mischa Auer Co. bond transactions, journal entries, balance sheet presentation

(Entries and Questions for Bond Transactions) On June 30, 2008, Mischa Auer Company issued $4,000,000 face value of 13%, 20-year bonds at $4,300,920, a yield of 12%. Auer uses the effective interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and December 31.

Instructions
1. Prepare the journal entries to record the following transactions.
1. The issuance of the bonds on June 30, 2008.
2. The payment of interest and the amortization of the premium on December 31, 2008.
3. The payment of interest and the amortization of the premium on June 30, 2009.
4. The payment of interest and the amortization of the premium on December 31, 2009.

2. Show the proper balance sheet presentation for the liability for bonds payable on the December 31, 2009, balance sheet.

3. Provide the answers to the following questions.
1. What amount of interest expense is reported for 2009?
2. Will the bond interest expense reported in 2009 be the same as, greater than, or less than the amount that would be reported if the straight-line method of amortization were used?
3. Determine the total cost of borrowing over the life of the bond.
4. Will the total bond interest expense for the life of the bond be greater than, the same as, or less than the total interest expense if the straight-line method of amortization were used?

View Full Posting Details