Question

CP12-47 (similar to) Tree Top Company is considering raising additional capital for further expansion. The company wants to finance a new business venture into guided trips down the Amazon River in South America.​ Additionally, the company wants to add another building on their land to offer more services for local customers.

Tree Top Company plans to raise the capital by issuing $800,000 9​%,six​-year

bonds on January​ 2,2020.The bonds pay interest semiannually on June 30 and December 31. The company receive $798,680

when the bonds are issued.

The company also issues a mortgage payable for

$825,000

on January​ 2,

20202020.

The proceeds from the mortgage will be used to construct the new building. The mortgage requires annual payments of $55,000

plus interest for fifteen

​years, payable on December 31. The mortgage interest rate is

10​%

now record the semiannual bond interest payment on December​ 31,

2020

Answer 1

Tree Top Company
Journal entries
Date	Account Titles and Explanation	Debit	Credit	Calculation
2-Jan-20	Cash	798,680
	Discount on Bonds Payable	1,320		=800,000-798,680
	Bonds Payable		800,000
2-Jan-20	Cash	825,000
	Mortgage Payable		825,000
30-Jun-20	Interest expense	36,110
	Discount on Bonds Payable		110	=1,320/(6 yrs *2)
	Cash		36,000	=800,000*9%*6/12
31-Dec-20	Interest expense	36,110
	Discount on Bonds Payable		110	=1,320/(6 yrs *2)
	Cash		36,000	=800,000*9%*6/12
31-Dec-20	Mortgage Payable	55,000
	Interest expense	82,500		=825,000*10%
	Cash		137,500