Question

In: Accounting

Problem 1 (18 pts.) Skinner Corporation issued $500,000 of 7% bonds for $486,500 to yield a...

Problem 1 (18 pts.)

Skinner Corporation issued $500,000 of 7% bonds for $486,500 to yield a market rate of 8%.

  1. Prepare the journal entry to record the sale of the bonds.
  1. Prepare the journal entry for the first semiannual interest payment.
  1. Prepare the journal entry for the second semiannual interest payment.

Problem 2 (18 pts.)

Smith Corporation issued $200,000 of 9%, 4-year bonds for 206,733 to yield a market rate of 8%. A partially completed amortization table is presented below.

INTEREST PERIOD

INTEREST EXPENSE

END OF PERIOD CARRYING VALUE

        6,733

           206,733

1

        8,269

              9,000

          731

        6,002

           206,002

2

        8,240

              9,000

            760

        5,242

           205,242

3

        8,210

              9,000

            790

        4,452

           204,452

4

        8,178

              9,000

            822

        3,630

           203,630

5

        8,145

              9,000

            855

        2,775

           202,775

6

7

8

REQUIREMENTS:

  1. Fill in the missing column headings in the table.
  2. Complete the last three lines of the table (interest periods 6, 7, & 8)

Solutions

Expert Solution

Journal entry in the Books of Skinner Corp as per Effective Interest method
Date Account title and explanation Debit(in $) Credit(in $)
Issue date Cash $                         486,500
Disount on Bond payable $                           13,500
Bonds Payable $                          500,000
(to bond issued at discount)
1st Semiannual Interest Period Interest expense($486,500*4%) $                           19,460
Cash($500,000*3.5%) $                            17,500
Disount on Bond payable $                              1,960
(to record entry for 1st semiannual interest payment)
2nd Semiannual Interest Period Interest expense($488,460*4%) $                           19,538
Cash($500,000*3.5%) $                            17,500
Disount on Bond payable $                              2,038
(to record entry for 2nd semiannual interest payment)
Interest Period Interest expense Interest paid in cash Discount Amortized Unamortized Discount End of Period Carrying Value
$                                  6,733 $                               206,733
1 $                                                                            8,269 $                             9,000 $                                 731 $                                  6,002 $                               206,002
2 $                                                                            8,240 $                             9,000 $                                 760 $                                  5,242 $                               205,242
3 $                                                                            8,210 $                             9,000 $                                 790 $                                  4,452 $                               204,452
4 $                                                                            8,178 $                             9,000 $                                 822 $                                  3,630 $                               203,630
5 $                                                                            8,145 $                             9,000 $                                 855 $                                  2,775 $                               202,775
6 $                                                                            8,111 $                             9,000 $                                 889 $                                  1,886 $                               201,886
7 $                                                                            8,075 $                             9,000 $                                 925 $                                     961 $                               200,961
8 $                                                                            8,039 $                             9,000 $                                 961 $                                        -   $                               200,000

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