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(Please Show How) Analyzing and Reporting Financial Statement Effects of Bond TransactionsOn January 1, 2016, Hutton...

(Please Show How)

Analyzing and Reporting Financial Statement Effects of Bond TransactionsOn January 1, 2016, Hutton Corp. issued $250,000 of 15-year, 20% bonds payable for $275,684, yielding an effective interest rate of 18%. Interest is payable semiannually on June 30 and December 31.

Required

a. Show computations to confirm the issue price of $275,684.

(Use a calculator or Excel for your calculations. Round your answers to the nearest dollar.)

Present value of principal repayment $Answer
Present value of interest payments $Answer
Selling price of bonds $Answer

b. Prepare journal entries to record the bond issuance, semiannual interest payment and premium amortization on June 30, 2016, and semiannual interest payment and premium amortization on December 31, 2016. Use the effective interest rate method.
(Round your answers to the nearest dollar.)

General Journal
Date Description Debit Credit
1/1/16 Cash Answer Answer
Bond premium Answer Answer
Bonds payable Answer Answer
6/30/16 Interest expense Answer Answer
Bond premium Answer Answer
Cash Answer Answer
12/31/16 Interest expense Answer Answer
Bond premium Answer Answer
Cash Answer Answer

c. Post the journal entries from part b to their respective T-accounts.

Cash (A)
01/01/16 Answer Answer
06/30/16 Answer Answer
12/31/16 Answer Answer
Bonds Payable (L)
01/01/16 Answer Answer
06/30/16 Answer Answer
12/31/16 Answer Answer
Interest Expense (E)
01/01/16 Answer Answer
06/30/16 Answer Answer
12/31/16 Answer Answer
Bond Premium (L)
01/01/16 Answer Answer
06/30/16 Answer Answer
12/31/16 Answer Answer

d. Record each of the transactions from part b in the financial statement effects template.

Balance Sheet
Transaction Cash Asset + Noncash Assets = Liabilities + Contrib. Capital + Earned Capital
1/1/16 Issue bonds at a premium $Answer + $Answer = $250,000 + $Answer + $Answer
Answer + Answer = Answer + Answer + Answer
6/30/16 Interest payment on bonds Answer + Answer = Answer + Answer + Answer
12/31/16 Interest payment on bonds Answer + Answer = Answer + Answer + Answer
Income Statement

Revenue

-

Expenses

=

Net Income
$Answer - $Answer = $Answer
Answer - Answer = Answer
Answer - Answer = Answer
Answer - Answer = Answer

Solutions

Expert Solution

par value of bonds 250000
Interest cash paid (250000*20%*6/12) 25000
Annuity PVF at 9% for 30 periods 10.27365
PVF at 9% for 30th period 0.075371
Present value of principal 18842.75
Present value off interest 256841.3
issue price 275684
Amort chart
Date Cash Int Int exp Premium Unamortize Carrying
Amortized Premmium Value
01.01.16 25684 275684
30.06.16 25000 24812 188 25496 275496
31.12.16 25000 24795 205 25291 275291
Journal entries
Date Accounts title and explanations Debit $ Credit $
01.01.16 Cash account Dr. 275684
     Bonds payable 250000
     Premium on bonds payable 25684
30.06.16 Interest expense Dr. 24812
Premium on bonds payable Dr. 188
      Cash account 25000
31.12.16 Interest expense Dr. 24795
Premium on bonds payable Dr. 205
      Cash account 25000
Cash Account Interest expenses
01.01 Bonds 250,000 30.06 Int expenses 25,000 30.06   Cassh 24,812
01.01   Premium on bonds 25,684 31.12 Int expense 25000 31.12   Cash 24,795
Balance 225,684 Balance 49,607
Bonds payable Premium on bonds
01.01.16 Cash account 250,000 30.06 Cash 188 01.01 Cash 25,684
30.06 Cash 205
Balance 250000 Balance 25291
Req d:
Transaction Cash + Non Cash assets = Liabilities + Cont. Cap + Earned cap Revenue- Expense = Income
01.01 Issue 250000 250000
25684 25684
30.06 Interest -25000 -188 -24812 24812 -24812
31.12 Interest -25000 -205 -24795 24795 -24795

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