In: Accounting
Problem 1 (18 pts.)
Skinner Corporation issued $500,000 of 7% bonds for $486,500 to yield a market rate of 8%.
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:
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 |