Question

In: Accounting

14-14 Quatro Co. issues bonds dated 1/1/2017 with a par value of $300,000. The bonds annual...

14-14 Quatro Co. issues bonds dated 1/1/2017 with a par value of $300,000.

The bonds annual rate is 13% and interest is paid semiannually on June 30 and December 31.

The bonds mature in three years.

The annual market rate at the date of issuance is 12%.

The bonds are sold for $307,388.

1. What is the amount of the premium on the bonds at issuance? 2. How much bond interest expense will be recognized over the life of the bonds? 3. Prepare an amortization table for these bonds; use the effective interest method to amortize the discount.

  1. 14-15. On 1/1/2017 Duval Co. issues semiannual interest, 4 yr 7%, $75,000 par value bonds at $71,964

1.Prepare an amortization table for these bonds; use the straight-line method of interest amortization. 2.Prepare journal entries to record the first two interest payments.2.Prepare the journal entry for maturity of the bonds on December 31, 2020.

Solutions

Expert Solution

14-14 1) Amount of premium 7388
(307388-30000)
2) Interest Expense to be recognized
Interest paid 117000 (300000*13%*3)
Less: Discount amortized 7388
Total interest to be recognized 109612
Year Interest Expense Interest paid Amortization of PREMIUM Carrying Value
Beg. Jan. 1 , 2017    307,388
June. 30. 2017                                                    18,443      19,500         1,057    306,331
Dec 31. 2017                                                    18,380      19,500         1,120    305,211
June. 30. 2018                                                    18,313      19,500         1,187    304,024
Dec 31. 2018                                                    18,241      19,500         1,259    302,765
June. 30. 2019                                                    18,166      19,500         1,334    301,431
Dec 31. 2019                                                    18,069      19,500         1,431    300,000
   14-15 I) Year Interest Expense Interest paid Amortization of Discount Carrying Value
Beg. Jan. 1 , 2017      71,964
June. 30. 2017                                                      3,005         2,625            380      72,344
Dec 31. 2017                                                      3,005         2,625            380      72,723
June. 30. 2018                                                      3,005         2,625            380      73,103
Dec 31. 2018                                                      3,005         2,625            380      73,482
June. 30. 2019                                                      3,005         2,625            380      73,862
Dec 31. 2019                                                      3,005         2,625            380      74,241
June. 30. 2020                                                      3,005         2,625            380      74,621
Dec 31. 2020                                                      3,005         2,625            380      75,000
   14-15 II) Date/Event Account Name Debit Credit
On First Interest Payment Interest Expense         3,005
        Discount on bonds payable            380
       Cash         2,625
(To record interest expense by amortizing discount on bond)
On second Interest Payment Interest Expense         3,005
        Discount on bonds payable            380
       Cash         2,625
(To record interest expense by amortizing discount on bond)
On maturity Bonds Payable 75000
     Cash 75000
(To record bond paid on maturity)

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