What is the maturity value of the bonds?

Question: Analyzing, journalizing, and reporting bond transactions

Danny’s Hamburgers issued 6%, 10-year bonds payable at 90 on December 31, 2018.

At December 31, 2020, Danny reported the bonds payable as follows:

Long-term Liabilities:

Bonds Payable $ 600,000

Less: Discount on Bonds Payable (48,000) $ 552,000

Danny’s pays semiannual interest each June 30 and December 31.

Requirements

1. Answer the following questions about Danny’s bonds payable:

a. What is the maturity value of the bonds?

b. What is the carrying amount of the bonds at December 31, 2020?

c. What is the semiannual cash interest payment on the bonds?

d. How much interest expense should the company record each year?

Solutions

Expert Solution

Step 1: Definition of carrying amount

The amount at which the bonds are purchased is known as the carrying amount of the bonds.

Step 2: Maturity value of the bonds

The maturity value of the bonds is $600,000.

Step 3: Carrying amount of the bonds

The carrying amount of the bonds is $552,000.

Step 4: Semi-annual interest payment

Step 5: Interest expense record each year

The company has to record $21,000 as an interest expense.

The amount at which the bonds are purchased is known as the carrying amount of the bonds.

Sahil Dangi answered 2 years ago

Next > < Previous

Related Solutions

Culver Company sells 8% bonds having a maturity value of $1,500,000 for $1,386,275. The bonds are...

Culver Company sells 8% bonds having a maturity value of $1,500,000 for $1,386,275. The bonds are dated January 1, 2020, and mature January 1, 2025. Interest is payable annually on January 1. 1.Determine the effective-interest rate. (Round answer to 0 decimal places, e.g. 18%.) The effective-interest rate _______% 2.Set up a schedule of interest expense and discount amortization under the effective-interest method. (Round intermediate calculations to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 38,548.)...

Blue Company sells 8% bonds having a maturity value of $2,510,000 for $2,319,700. The bonds are...

Blue Company sells 8% bonds having a maturity value of $2,510,000 for $2,319,700. The bonds are dated January 1, 2020, and mature January 1, 2025. Interest is payable annually on January 1. Determine the effective-interest rate. (Round answer to 0 decimal places, e.g. 18%.) The effective-interest rate % eTextbook and Media Set up a schedule of interest expense and discount amortization under the effective-interest method. (Round intermediate calculations to 5 decimal places, e.g. 1.25124 and final answer to...

Cheyenne Company sells 8% bonds having a maturity value of $2,400,000 for $2,218,040. The bonds are...

Cheyenne Company sells 8% bonds having a maturity value of $2,400,000 for $2,218,040. The bonds are dated January 1, 2020, and mature January 1, 2025. Interest is payable annually on January 1. Determine the effective-interest rate. (Round answer to 0 decimal places, e.g. 18%.) The effective-interest rate % eTextbook and Media Set up a schedule of interest expense and discount amortization under the effective-interest method. (Round intermediate calculations to 5 decimal places, e.g. 1.25124 and final answer to...

Swifty Company sells 10% bonds having a maturity value of $2,600,000 for $2,503,904. The bonds are...

Swifty Company sells 10% bonds having a maturity value of $2,600,000 for $2,503,904. The bonds are dated January 1, 2017, and mature January 1, 2022. Interest is payable annually on January 1. A. Swifty Company sells 10% bonds having a maturity value of $2,600,000 for $2,503,904. The bonds are dated January 1, 2017, and mature January 1, 2022. Interest is payable annually on January 1. B. Set up a schedule of interest expense and discount amortization under the effective-interest method....

Sage Company sells 8% bonds having a maturity value of $2,620,000 for $2,421,360. The bonds are...

Sage Company sells 8% bonds having a maturity value of $2,620,000 for $2,421,360. The bonds are dated January 1, 2020, and mature January 1, 2025. Interest is payable annually on January 1. Set up a schedule of interest expense and discount amortization under the effective-interest method.

Sage Company sells 9% bonds having a maturity value of $1,610,000 for $1,435,895. The bonds are...

Sage Company sells 9% bonds having a maturity value of $1,610,000 for $1,435,895. The bonds are dated January 1, 2020, and mature January 1, 2025. Interest is payable annually on January 1. Set up a schedule of interest expense and discount amortization under the straight-line method.

Martinez Company sells 8% bonds having a maturity value of $2,510,000 for $2,319,700. The bonds are...

Martinez Company sells 8% bonds having a maturity value of $2,510,000 for $2,319,700. The bonds are dated January 1, 2020, and mature January 1, 2025. Interest is payable annually on January 1. Determine the effective-interest rate. (Round answer to 0 decimal places, e.g. 18%.) Set up a schedule of interest expense and discount amortization under the effective-interest method. (Round intermediate calculations to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 38,548.)

Swifty Company sells 8% bonds having a maturity value of $2,650,000 for $2,356,174. The bonds are...

Swifty Company sells 8% bonds having a maturity value of $2,650,000 for $2,356,174. The bonds are dated January 1, 2017, and mature January 1, 2022. Interest is payable annually on January 1. a. Determine the effective-interest rate. The effective-interest rate = b. Set up a schedule of interest expense and discount amortization under the effective-interest method. Year Cash Paid Interest Expense Discount Amortized Carrying Amount of Bonds Jan. 1, 2017 Jan. 1, 2018 Jan. 1, 2019 Jan. 1, 2020 Jan....

1. What is the yield to maturity on the following bonds; all have a maturity of...

1. What is the yield to maturity on the following bonds; all have a maturity of 10 years, a face value of 2000, and a coupon rate of 4 percent (paid semiannually). The bond's current prices are: a. $1,180 b. $ 2,400 c. Explain the relationship between yield to maturity and bond prices.

a. Heath Foods’s bonds have 10 years remaining to maturity. The bonds have a face value...

a. Heath Foods’s bonds have 10 years remaining to maturity. The bonds have a face value of $1,000 and a yield to maturity of 9%. They pay interest annually and have a 10% coupon rate. What is their current yield? b. Suppose Hillard Manufacturing sold an issue of bonds with a 12-year maturity, a $1,000 par value, a 10% coupon rate, and semiannual interest payments. Two years after the bonds were issued, the going rate of interest on bonds such...

Subjects