On January 1, 2019, Kelp Corporation acquired bonds with a face value of $700,000 for $677,829.11,...

On January 1, 2019, Kelp Corporation acquired bonds with a face value of $700,000 for $677,829.11, a price that yields a 11% effective annual interest rate. The bonds carry a 10% stated rate of interest, pay interest semiannually on June 30 and December 31, are due December 31, 2022, and are being held to maturity.

Required:

Prepare journal entries to record the purchase of the bonds and the first two interest receipts using the:

1.	straight-line method of amortization
2.	effective interest method of amortization

Solutions

Expert Solution

discount on investment = face value - purchase price

= 700000 - 677829.11

= 22170.89

straight line amortization per year

= discount / no of years to maturity

= 22170.89/4

= 5542.7225

for semi annual period = 5542.7225 / 2

= 2771.36125

= $ 2771 ( nearest dollar )

cash received as interest for semi-annual period = Face value * stated rate * (6/12)

= 700000 * 10% * (6/12)

= $ 35000

problem - 1

Straight line Amortization

Date	Accounts Name	Debit	Credit

1-Jan	investment in held to maturity debt securities	677829.11
	cash		677829.11

1-Jul	cash ( 70000010% 6/12 )	35000
	investment in held to maturity debt securities	2771
	interest revenue		37771

31-Dec	Cash	35000
	investment in held to maturity debt securities	2771
	interest revenue		37771

problem- 2

effective interest method amortization

Date (ddmmyyyy)	int on bonds (market rate) (11% * E)	Interest on bonds (cuponrate) (70000010%(6/12))	Amortization of bonds Discount	carrying value
	A	B	C (A-B)	E
	credit (interest revenue)	debit(Cash received )	debit (Discount on bonds)
1-Jan				677829.11
30-Jun	37280.60	35000.00	2280.60	680109.71
31-Dec	37406.03	35000.00	2406.03	682515.75

Date	Accounts Name	Debit	Credit

1-Jan	investment in held to maturity debt securities	677829.11
	cash		677829.11

1-Jul	cash ( 70000010% 6/12 )	35000
	investment in held to maturity debt securities	2280.6
	interest revenue		37280.6

31-Dec	Cash	35000
	investment in held to maturity debt securities	2406.03
	interest revenue		37406.03

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Pennington Corporation issued 5-year, 8.6% bonds with a total face value of $700,000 on January 1,...

Pennington Corporation issued 5-year, 8.6% bonds with a total face value of $700,000 on January 1, 2021, for $680,000. The bonds pay interest on June 30 and December 31 of each year. Required: 1. Prepare an amortization table using straight line. 2. Prepare the entries to recognize the bond issuance and the interest payments made on June 30, 2021, and December 31, 2021.

On June 1 2019, Gator Corporation Issued $700,000, 6%, 10 year bonds at face value. Interest...

On June 1 2019, Gator Corporation Issued $700,000, 6%, 10 year bonds at face value. Interest is payable annually on June 1. Gator Corporation has a calendar year end. a. Show the balance sheet presentation of the bonds and any related accounts on December 31, 2019. b. Prepare the journal entry for the interest payment on June 1 2020.

On January 1, 2018, Kelly Corporation acquired bonds with a face value of $500,000 for $483,841.79,...

On January 1, 2018, Kelly Corporation acquired bonds with a face value of $500,000 for $483,841.79, a price that yields a 10% effective annual interest rate, pay interest on June 30 and December 31, and are due December 31, 2021, and are being held to maturity. Required: Prepare journal entries to record the purchase of the bonds and the first two interest receipts using the: 1.) straight line method of amortization 2.) effective interest method of amortization

Park Corporation is planning to issue bonds with a face value of $700,000 and a coupon...

Park Corporation is planning to issue bonds with a face value of $700,000 and a coupon rate of 7.5 percent. The bonds mature in 6 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Park uses the effective-interest amortization method and also uses a discount account. Assume an annual market rate of interest of 8.5 percent. (FV of $1, PV of $1, FVA of $1, and...

On January 1, 2019 Lightfoot Corporation issues 10%, 5-year bonds with a face value of $275,000...

On January 1, 2019 Lightfoot Corporation issues 10%, 5-year bonds with a face value of $275,000 when the effective interest rate is 9%. Interest is to be paid semiannually on June 30 and December 31. Lightfoot uses the effective interest method to amortize the premium on June 30, 2019. Prepare the journal entry to record the first interest payment on June 30, 2019.

Tudor Company acquired $500,000 of Carr Corporation bonds for $487,706.69 on January 1, 2019. The bonds...

Tudor Company acquired $500,000 of Carr Corporation bonds for $487,706.69 on January 1, 2019. The bonds carry an 11% stated interest rate, pay interest semiannually on January 1 and July 1, were issued to yield 12%, and are due January 1, 2022. Required: 1. Prepare an investment interest income and discount amortization schedule using the: a. straight-line method b. effective interest method 2. Prepare the July 1, 2021, journal entries to record the interest income under both methods. 1a. Prepare...

On January 1, 2019, ABC Company issued bonds with a face value of $1,000 and a...

On January 1, 2019, ABC Company issued bonds with a face value of $1,000 and a coupon rate of 8 percent. The bonds mature in 2 years and pay interest on June 30 and December 31 each year. The market rate is 12% annually. The present value of $1 table and the present value of annuity of $1 table are provided on the next page. Round your final answers to the nearest whole dollar. (1) What is the issue price...

Question: Bonds Payable On January 1, 2019, ABC Company issued bonds with a face value of...

Question: Bonds Payable On January 1, 2019, ABC Company issued bonds with a face value of $1,000 and a coupon rate of 8 percent. The bonds mature in 2 years and pay interest on June 30 and December 31 each year. The market rate is 12% annually. The present value of $1 table and the present value of annuity of $1 table are provided on the next page.Round your final answers to the nearest whole dollar. (1) What is the...

On January 1, 2019, WIZARDS CORPORATION issued 2,000 of its 5-year, P1,000 face value 11% bonds...

On January 1, 2019, WIZARDS CORPORATION issued 2,000 of its 5-year, P1,000 face value 11% bonds date January 1 at an effective annual interest rate (yield) of 9%. Interest is payable each December 31. Wizards uses the effective interest method of amortization. On December 31, 2020. The 2,000 bonds were extinguished early through acquisition on the Open Market by Wizard for P1,980,000 plus accrued interest. On July 1, 2019, Wizards issued 5,000 of its P1,000 face value, 10% convertible bonds...

On January 1, 2019 Maxxum PLC issued 12% bonds with a face value of £800,000 and...

On January 1, 2019 Maxxum PLC issued 12% bonds with a face value of £800,000 and offering bondholders a 10% yield. The bonds are dated January 1, 2019 and mature January 1, 2024 with interest payable December 31 each year. (100 POINTS) Instructions Prepare the journal entry at the date of the bond issuance. Prepare a schedule of interest expense and bond amortization for 2019-2021 Prepare the journal entry to record the interest payment and amortization for 2019 Prepare the journal...

Subjects