Question

Brief Exercise 14-1

Whispering Corporation issues $410,000 of 9% bonds, due

in 11 years, with interest payable semiannually. At the time of

issue, the market rate for such bonds is 10%.

Compute the issue price of the bonds

Issue price of the bonds

Brief Exercise 14-6

On January 1, 2017, Marigold Corporation issued $650,000 of 9%

bonds, due in 10 years. The bonds were issued for $609,499, and

pay interest each July 1 and January 1. Marigold uses the

effective-interest method.

Prepare the company’s journal entries for (a) the January 1

issuance, (b) the July 1 interest payment, and (c) the December

31 adjusting entry. Assume an effective-interest rate of 10%.

No. Date Account Titles and Explanation Debit Credit

Brief Exercise 14-8

Larkspur Corporation issued $570,000 of 9% bonds on November

1, 2017, for $603,210. The bonds were dated November 1, 2017,

and mature in 8 years, with interest payable each May 1 and

November 1. Larkspur uses the effective-interest method with an

effective rate of 8%.

Prepare Larkspur’s December 31, 2017, adjusting entry

Brief Exercise 14-11

Sunland Corporation issued a 5-year, $73,000, zero-interestbearing

note to Brown Company on January 1, 2017, and

received cash of $41,422. The implicit interest rate is 12%.

Prepare Sunland’s journal entries for (a) the January 1 issuance

and (b) the December 31 recognition of interest.

Brief Exercise 14-12

Sheridan Corporation issued a 4-year, $43,000, 4% note to

Greenbush Company on January 1, 2017, and received a

computer that normally sells for $34,822. The note requires

annual interest payments each December 31. The market rate of

interest for a note of similar risk is 10%.

Prepare Sheridan’s journal entries for (a) the January 1 issuance

and (b) the December 31 interest.

Brief Exercise 14-15

At December 31, 2017, Nash Corporation has the following

account balances:

Bonds payable, due

January 1, 2026 $1,900,000

Discount on bonds

payable 77,000

Interest payable 71,000

Show how the above accounts should be presented on the

December 31, 2017, balance sheet, including the proper

classifications

Exercise 14-9 (Part Level Submission)

On June 30, 2017, Ayayai Company issued $4,400,000 face

value of 13%, 20-year bonds at $4,731,010, a yield of 12%.

Ayayai uses the effective-interest method to amortize bond

premium or discount. The bonds pay semiannual interest on

June 30 and December 31.

(a)

Prepare the journal entries to record the following

transactions.

(1)

The issuance of the bonds on June 30, 2017.

(2)

The payment of interest and the amortization of the

premium on December 31, 2017.

(3)

The payment of interest and the amortization of the

premium on June 30, 2018.

(4)

The payment of interest and the amortization of the

premium on December 31, 2018.

The following items are found in the financial statements.

Indicate how each of these items should be classified in the

financial statements.

Classification

(a) Discount on bonds payable

(b) Interest expense (credit balance)

(c) Unamortized bond issue costs

(d) Gain on repurchase of debt

(e)

Mortgage payable (payable in equal amounts

over next 3 years)

(f)

Debenture bonds payable (maturing in 5

years)

(g) Notes payable (due in 4 years)

(h) Premium on bonds payable

(i) Bonds payable (due in 3 years)

Exercise 14-10 (Part Level Submission)

On January 1, 2017, Riverbed Company sold 12% bonds

having a maturity value of $410,000 for $441,084, which

provides the bondholders with a 10% yield. The bonds are

dated January 1, 2017, and mature January 1, 2022, with

interest payable December 31 of each year. Riverbed

Company allocates interest and unamortized discount or

premium on the effective-interest basis.

(a)

Prepare the journal entry at the date of the bond issuance

Answer 1

14-1)semiannual interest(PMT) :410000*.09*6/12=18450

semiannual months(n) :11*2=22

semiannaul market rate(i) =10*6/12 = 5%

Issue price : [PVA 5%,22*Interest]+ [PVF5%,22*Face value]

     =[13.16300*18450]+ [.34185*410000]

      =242857.35+ 140158.5

        = $ 383015.85

**Present value factor and annuity factor can be find using financial calculator or table

14-6)

Date	Account	Debit	credit
jan 1 2017	cash	609499
	Discount on bond payable	40501
	Bond payable		650000
	[Being bond issued at discount]
1 july 2017	Interest expense [609499*.10*6/12]	30475
	Discount on bond payable		1225
	cash [650000*.09*6/12]		29250
	[being bond first semiannual interest paid]
dec 31 2017	Interest expense [610724*.10*6/12]	30536
	Discount on bond payable		1286
	Interest payable		29250

**Bond carrying value after first semiannual payment =carrying value + discount amortised

         = 609499+1225

         = 610724

14-8)

Date	Account	Debit	credit
31 december2 017	Interest expense [603210*.08*2/12]	8043
	premium on bond payable	507
	Bond payable [570000*.09*2/12]		8550
	[Being interest accrued for 2 months 2 nov -31 dec]

14-11)

Date	Account	Debit	credit
1jan 2017	cash	41422
	Discount on bond payable	31578
	Bond payable		73000
	[Being bond issued at discount]
31 dec 2017	Interest expense	4970.64
	Discount on bond payable		4970.64
	[being expense for a period recorded 41422*.12]