Question

In: Accounting

On January 1, 2017, Blue Company issued $1,810,000 face value, 7%, 10-year bonds at $1,943,218. This...

On January 1, 2017, Blue Company issued $1,810,000 face value, 7%, 10-year bonds at $1,943,218. This price resulted in a 6% effective-interest rate on the bonds. Blue uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest on each January 1.

A. Prepare the journal entries to record the following transactions. (Round answers to 0 decimal places, e.g. 125. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

1. The issuance of the bonds on January 1, 2017.
2. Accrual of interest and amortization of the premium on December 31, 2017.
3. The payment of interest on January 1, 2018.
4.

Accrual of interest and amortization of the premium on December 31, 2018.

B. Show the proper long-term liabilities balance sheet presentation for the liability for bonds payable at December 31, 2018. (Round answers to 0 decimal places, e.g. 125.)

C. Provide the answers to the following questions.

1. What amount of interest expense is reported for 2018? (Round answer to 0 decimal places, e.g. 125.)

Interest expense to be reported

 $ enter Interest expense in dollars


2. The bond interest expense reported in 2018 would be (select an option: greater than, less than, same as) the amount that would be reported if the straight-line method of amortization were used.

Solutions

Expert Solution

interest interest premium Carrying
paid expense amortised value
6/30/2107 1,943,218
12/31/2017 126700 116593 10107 1933111
12/31/2018 126700 115987 10713 1922398
No Date Account titles & Explanations Debit Credit
1) 1/1/2017 Cash 1,943,218
premium on bonds 133,218
bonds payable 1,810,000
2) 12/31/2017 interest expense 116593
premium on bonds 10107
interest payable 126700
1/1/2018 interest payable 126700
cash 126700
3) 12/31/2018 interest expense 115987
premium on bonds 10713
Cash 126700
b) Balance sheet (partial)
As on December 31,2018
long term liabilities
bonds payable 1,810,000
Add :premium on bonds 112,398 1,922,398
c) interest expense reported for 2018 115987
less under straight line method
greater

ekkarill92 answered 15 hours ago
Next > < Previous

Related Solutions

On January 1, 2017, Bramble Company issued $ 1,820,000 face value,  7%,  10-year bonds at $ 1,953,954. This...
On January 1, 2017, Bramble Company issued $ 1,820,000 face value,  7%,  10-year bonds at $ 1,953,954. This price resulted in a  6% effective-interest rate on the bonds. Bramble uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest on each January 1. Prepare the journal entries to record the following transactions. (Round answers to 0 decimal places, e.g. 125. Credit account titles are automatically indented when amount is entered. Do not indent manually.) 1. The issuance of...
On January 1, 2017, Riverbed Company issued $ 1,930,000 face value,  9%,  10-year bonds at $ 2,059,503. This...
On January 1, 2017, Riverbed Company issued $ 1,930,000 face value,  9%,  10-year bonds at $ 2,059,503. This price resulted in a  8% effective-interest rate on the bonds. Riverbed uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest on each January 1. Prepare the journal entries to record the following transactions. (Round answers to 0 decimal places, e.g. 125. Credit account titles are automatically indented when amount is entered. Do not indent manually.) 1. The issuance of...
On January 1, 2017, Grouper Company issued 10-year, $1,980,000 face value, 6% bonds, at par. Each...
On January 1, 2017, Grouper Company issued 10-year, $1,980,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 15 shares of Grouper common stock. Grouper’s net income in 2017 was $304,000, and its tax rate was 40%. The company had 102,000 shares of common stock outstanding throughout 2017. None of the bonds were converted in 2017. (a) Compute diluted earnings per share for 2017. (Round answer to 2 decimal places, e.g. $2.55.) Diluted earnings per share $...
On August 1, 2017, Blue Spruce Corp. issued $507,600, 6%, 10-year bonds at face value. Interest...
On August 1, 2017, Blue Spruce Corp. issued $507,600, 6%, 10-year bonds at face value. Interest is payable annually on August 1. Blue Spruce’s year-end is December 31. Prepare a tabular summary to record the following events. (a) The issuance of the bonds. (b) The accrual of interest on December 31, 2017. (c) The payment of interest on August 1, 2018.
Question 2 On January 1, 2017, Sunland Company issued eight-year bonds with a face value of...
Question 2 On January 1, 2017, Sunland Company issued eight-year bonds with a face value of $6110000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are: Present value of 1 for 8 periods at 6%          0.627 Present value of 1 for 8 periods at 8%          0.540 Present value of 1 for 16 periods at 3%        0.623 Present value of 1 for 16 periods at...
On January 1, 2020, North Country Co issued 10-year, 7 percent bonds with a face value...
On January 1, 2020, North Country Co issued 10-year, 7 percent bonds with a face value of $1 million. The market rate for bonds of this class at the time of issue was 8%. Interest is payable annually, with the first payment due on December 31, 2020. a. Compute the issue price of the bonds. b. Show the journal entry to record the issuance of the bonds on January 1. c. Show the journal entry to record the first interest...
On January 1, 2018, Irik Corporation issued $1,700,000 face value, 7%, 10-year bonds at $1,585,929. This...
On January 1, 2018, Irik Corporation issued $1,700,000 face value, 7%, 10-year bonds at $1,585,929. This price resulted in an effective-interest rate of 8% on the bonds. The bonds pay annual interest, each January 1. Prepare the journal entry to record the issue of the bonds on January 1, 2018. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit Jan. 1, 2018 enter an account title to record...
Diaz Company issued bonds with a $110,000 face value on January 1, Year 1. The bonds...
Diaz Company issued bonds with a $110,000 face value on January 1, Year 1. The bonds had a 6 percent stated rate of interest and a 10-year term. Interest is paid in cash annually, beginning December 31, Year 1. The bonds were issued at 96. The straight-line method is used for amortization. Required a. Use a financial statements model like the one shown next to demonstrate how (1) the January 1, Year 1, bond issue and (2) the December 31,...
Jacobs Company issued bonds with a $178,000 face value on January 1, Year 1. The bonds...
Jacobs Company issued bonds with a $178,000 face value on January 1, Year 1. The bonds were issued at 105 and carried a 5-year term to maturity. They had a 7% stated rate of interest that was payable in cash on December 31st of each year. Jacobs uses the straight-line method to amortize bond discounts and premiums. Based on this information alone, how does the recognition of interest expense during Year 1 affect the company’s accounting equation? Multiple Choice Increase...
Jacobs Company issued bonds with a $178,000 face value on January 1, Year 1. The bonds...
Jacobs Company issued bonds with a $178,000 face value on January 1, Year 1. The bonds were issued at 105 and carried a 5-year term to maturity. They had a 7% stated rate of interest that was payable in cash on December 31st of each year. Jacobs uses the straight-line method to amortize bond discounts and premiums. Based on this information alone, how does the recognition of interest expense during Year 1 affect the company’s accounting equation? Multiple Choice Increase...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT