Brief Exercise 14-8 Teton Corporation issued $731,000 of 7% bonds on November 1, 2014, for $776,913....

Brief Exercise 14-8

Teton Corporation issued $731,000 of 7% bonds on November 1, 2014, for $776,913. The bonds were dated November 1, 2014, and mature in 8 years, with interest payable each May 1 and November 1. Teton uses the effective-interest method with an effective rate of 6%.

Prepare Teton’s December 31, 2014, adjusting entry

Solutions

Expert Solution

All working forms part of the answer
Effective rate is 6%, hence half yearly rate is 3%.
Bonds rate is 7%, hence half yearly rate is 3.5%
Bonds premium = 776913 – 731000 = $45,913
Amortisation table

Semiannual Interest Period End	Cash Interest paid $	Bond Interest Expense $	Premium Amortisation$	Unamortised Premium $	Carrying Value$
Date	A=731000 x 3.5%	B=Ex3%	C=A – B	D= D - C	E = E - C
01-11-2014				45913.00	776913.00
01-05-2015	25585.00	23307.39	2277.61	43635.39	774635.39
01-11-2015	25585.00	23239.06	2345.94	41289.45	772289.45
01-05-2016	25585.00	23168.68	2416.32	38873.14	769873.14
01-11-2016	25585.00	23096.19	2488.81	36384.33	767384.33
01-05-2017	25585.00	23021.53	2563.47	33820.86	764820.86
01-11-2017	25585.00	22944.63	2640.37	31180.48	762180.48
01-05-2018	25585.00	22865.41	2719.59	28460.90	759460.90
01-11-2018	25585.00	22783.83	2801.17	25659.73	756659.73
01-05-2019	25585.00	22699.79	2885.21	22774.52	753774.52
01-11-2019	25585.00	22613.24	2971.76	19802.75	750802.75
01-05-2020	25585.00	22524.08	3060.92	16741.84	747741.84
01-11-2020	25585.00	22432.26	3152.74	13589.09	744589.09
01-05-2021	25585.00	22337.67	3247.33	10341.76	741341.76
01-11-2021	25585.00	22240.25	3344.75	6997.02	737997.02
01-05-2022	25585.00	22139.91	3445.09	3551.93	734551.93
01-11-2022	25585.00	22036.56	3548.44	3.49	731003.49

Journal Entries asked and other for understanding

Date	General Journal	Dr (in $)	Cr (in $)	Working
01-11-2014	cash	776913
	bonds payable		731000
	premium		45913
	(Bonds issued at premium)

30-11-2014	Interest expense	3885		6 months interest = 23307
	Interest payable		3885	1 month = 23307/6
	(Interest due and expense for Nov recorded)

30-11-2014	Premium	380		6 months premium amortised = 2278
	interest expense		380	1 month amortised = 2278/6
	(premium for Nov amortised)

ekkarill92 answered 1 year ago

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