In: Accounting
(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.
|
|
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 | |||||||