Question

In: Accounting

On January 1, 2020, Bristol Corporation issued one 3-year, 10% (stated rate), $20,000 bond at a...

On January 1, 2020, Bristol Corporation issued one 3-year, 10% (stated rate), $20,000 bond at a price which would yield the purchaser an 9% return. Payment of interest is made on December 31. The year end is December 31. The company uses the ‘effective interest’ method to account for bond interest.

Prepare the entry to record the sale of the bond on January 1, 2020.
Prepare a bond amortization schedule in good form for the bond.
Prepare the entry on December 31, 2020.
Assume that Bristol used the ‘straight-line’ method to account for bond interest. Record the journal entry for 2022 to account for interest.
Assume that Bristol repurchased the bond for $20,600 on January 1, 2021. Prepare the journal entry to record the repurchase. (Company had used the ‘effective interest’ method.)
Calculate the price of the bond if the bond had been issued on Oct. 1, 2020. Prepare the entry on that date for the issue of the bond. (Assume same rates as per information above.)

Expert Solution

Yield = 9% (Note we always use market/effective/yield/yield to maturity/ real rate to calculate the bond Discount or premium)

Stated Rate = 10%

Face Value = 20,000

Interest per year= 2,000

PV Factor of ordinary annuity at 9% for 3 years = 2.53129

PV factor for $1 for 3 years = 0.77218

Calculating Carrying value of Bond

PV of Principal 15444 (20000*0.77218)

PV of annuity 506 (2000*2.53129)

PV of Bond 20506

1 Prepare the entry to record the sale of the bond on January 1,2020.

Jan 1,2020 Dr. Cash 20506

Cr. Bonds Payable 20000

Cr. Bonds Premium 506

2 Prepare a bond amortization schedule in good form for the bond.

Amortization Schedule

Period	Effective Interest @ 9%	Interest Paid (10% of $20,000)	Plug for Premium Amortization	Bonds Carrying Value
				20506
1	1846	2000	154	20352
2	1832	2000	168	20183
3	1817	2000	183	20000

3. Prepare the entry on December 31, 2020.

Interest Paid

Dr. Interest Expense 2000

Cr. Cash 2000

Bond premium Amortization

Dr. Bond Premium 154

Cr. Interest Expense 154

4 Assume that Bristol used the ‘straight-line’ method to account for bond interest. Record the journal entry for 2022 to account for interest.

Discount Amortization over 3 periods 169 (506/3)

Interest Paid

Dr. Interest Expense 2000

Cr. Cash 2000

Bond premium Amortization

Dr. Bond Premium 169

Cr. Interest Expense 169

Amortization Schedule

Period	Interest Paid (10% of $20,000)	Plug for Premium Amortization	Bonds Carrying Value
			20506
1	2000	169	20337
2	2000	169	20168
3	2000	169	20000

5. Assume that Bristol repurchased the bond for $20,600 on January 1, 2021. Prepare the journal entry to record the repurchase. (Company had used the ‘effective interest’method.)

Dr. Bond Payable 20352

Dr. Interest Payable 0

Dr. Premium-Unamort. 352

Dr. Loss (plug) 0

Cr. Cash Paid 20600

Cr. Gain (plug) 104

6 Calculate the price of the bond if the bond had been issued on Oct. 1, 2020. Prepare the entry on that date for the issue of the bond. (Assume same rates as per information above.)

Oct 1,2020 Dr. Cash 21006

Cr. Bonds Payable 20000

Cr. Bonds Premium 506

Cr. Accrued Interest 500 [(2000/12)*3]

ekkarill92 answered 1 year ago

XYZ Corporation issued bonds on January 1, 2020 with a face value of $1,000, 10% stated...

XYZ Corporation issued bonds on January 1, 2020 with a face value of $1,000, 10% stated interest rate, with semi-annual payments, and a maturity date of December 31, 2024 (4 years). The market interest rate is 8%. Required: (Answers may be rounded to the nearest dollar) 1. Compute the market price of the bonds and the journal entry to record issuance of the bonds on January 1, 2020. 2. Record the journal entry for the first semi-annual interest payment on...

on January 1, 2016 North Company issued $2000000 of bonds with a stated rate of 10%...

on January 1, 2016 North Company issued $2000000 of bonds with a stated rate of 10% that are due to mature December 31, 2025, and pay interest semiannually. The market rate of interest was 9% at the date of issuance. Prepare the journal entry for the sale of the bonds on January 1, 2016. Prepare a Amortization schedule.

on January 1, 2013, Johnson corporation issued a 10 year, 6% bond with a face value...

on January 1, 2013, Johnson corporation issued a 10 year, 6% bond with a face value of $2,175,000. The bonds were sold to yield 5%. Interest is payable semi-annually on January 1 and July 1. Effective ammortization is to be used. What accounts related to this bond would be shown on the 12/31/13 balance sheet? show in the proper sections. Current Liabilities: Long-term Liabilities:

On January 1, 2019, Drennen Inc. issued $5 million face amount of 10-year, 14% stated rate...

On January 1, 2019, Drennen Inc. issued $5 million face amount of 10-year, 14% stated rate bonds when market interest rates were 12%. The bonds pay semiannual interest each June 30 and December 31 and mature on December 31, 2028. a. Calculate the proceeds (issue price) of Drennen Inc.'s bonds on January 1, 2019, assuming that the bonds were sold to provide a market rate of return to the investor. (Round PV factor to 4 decimal places.) b-1. Assume instead...

Question 3 On January 1, 2020, Gus Corporation issued $4,000,000, 6%, 5-year bonds dated January 1,...

Question 3 On January 1, 2020, Gus Corporation issued $4,000,000, 6%, 5-year bonds dated January 1, 2020, at 98. The bonds pay semi-annual interest on January 1 and July 1. The company uses the straight-line method of amortization and has a calendar year end. Required Prepare all the journal entries that Gus Corporation would make related to this bond issue through January 1, 2021. Be sure to indicate the date on which the entries would be made.

On January 1, 2020, Timmy Corporation issues bonds to the investing public. The stated (contractual) rate...

On January 1, 2020, Timmy Corporation issues bonds to the investing public. The stated (contractual) rate of interest is 5.5%. The market rate of interest on this issue date is 5%. The bonds have a face value of $1,000,000 and are issued at $1,115,000. Interest is paid every January 1. On this date, this market rate of interest is 5.1% How much interest will be paid on January 1, 2021?

On January 1, 20D, Janus Company issued $5 million of 10-year bonds at a 10% stated...

On January 1, 20D, Janus Company issued $5 million of 10-year bonds at a 10% stated interest rate to be paid semiannually. Assume straight-line amortization. 15. If Janus issued the bonds at a price of 106.5, the amount of interest expense on June 20, 20D equals: (a) $467,500 (b) $440,875 (c) $233,750 (d) $222,044 16. If Janus issued the bonds at a price of 106.5, what is the book value of Janus' bonds on July 1, 20D after the interest...

a) On January 1, XXX1, a company issued $20,000, 10%, 5-year bonds at a price of...

a) On January 1, XXX1, a company issued $20,000, 10%, 5-year bonds at a price of $22,000. The straight-line method is used to amortize any bond discount or premium and interest is paid semiannually on June 30 and December 31. If all interest has been accounted for properly, what is the carrying value of these bonds three years later on January 1, XXX4? b) On January 1, XXX1, a company issued $20,000, 10%, 5-year bonds at a price of $18,000....

Derek Corporation was organized on January 1, 2017. During its first year, the corporation issued 20,000...

Derek Corporation was organized on January 1, 2017. During its first year, the corporation issued 20,000 shares of $5 shares par value preferred stock and 200,000 shares of $1 par value common stock. At December 31, the company declared the following cash dividends: 2017$ 4,000 2018$13,000 2019$28,000 INSTRUCTIONS: a) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 5% and not cumulative. b)Show the allocation of dividends to each class of stock,...

On January 1, 2020, Perfection Company issued $400,000 of 10%, 6-year bonds dated January 1, 2020,...

On January 1, 2020, Perfection Company issued $400,000 of 10%, 6-year bonds dated January 1, 2020, with interest payments every June 30 and December 31. The bonds were issued at $382,762 when the market rate was 11%. Perfection Company amortizes any premium or discount using the EFFECTIVE-INTEREST-RATE method. Round all numbers to the nearest whole number. 1-Using proper formatting (eliminating the date), prepare the journal entry on January 1, 2020 to record the issuance of the bonds. 2-Using proper formatting...