Question

In: Accounting

The Gorman Group issued $890,000 of 9% bonds on June 30, 2021, for $978,079. The bonds...

The Gorman Group issued $890,000 of 9% bonds on June 30, 2021, for $978,079. The bonds were dated on June 30 and mature on June 30, 2041 (20 years). The market yield for bonds of similar risk and maturity is 8%. Interest is paid semiannually on December 31 and June 30.

Required:
Complete the below table to record the company's journal entry.
1. to 3. Prepare the journal entries to record their issuance by The Gorman Group on June 30, 2021, interest on December 31, 2021 and interest on June 30, 2022 (at the effective rate).

Expert Solution

In the books of The Gorman Group

1.Journal Entry For Issuance on June 20,2021

Date General Journal Debit Credit

June 20, 2021 Cash $978,079

Bond Payable $890,000

Premium on Bond Payable $88,079

Explanation:

Amount of Cash = Issue Price i.e. $978,079

Amount of Bond Payable = Face Value of Issued Bond i.e. $890,000

Amount of Premium on Bond Payable = Issue Price - Face Value i.e. {$978,079 - $890,000} $88,079

2.Journal Entry For Payment of Interest on December 31, 2021 and June 30, 2022.

Date General Journal Debit Credit

December 31, 2021 Interest Expense $39,123

Premium on bonds payable $927

Cash $40,050

June 30, 2022 Interest Expense $39,086

Premium on bonds payable $964

Cash $40,050

Explanation:

Amount of interest = Rate of Srcurity with Similar * Net Issue Price

Cash actually Paid = Acual Rate * Face Value

Premium on bond (Amortization amount) = Amount of interest - Cash

For December 31, 2021

Amount of interest = 4% * $978,079 = $39,123

Cash actually Paid = 4.5% * $890,000 = $40,050

Premium on bond (Amortization amount) = $927

For June 30, 2022

Amount of interest = 4% * {$978,079 - 927} = $39,086

Cash actually Paid = 4.5% * $890,000 = $40,050

Premium on bond (Amortization amount) = $964

ekkarill92 answered 1 year ago

On June 30, 2021, Singleton Computers issued 7% stated rate bonds with a face amount of...

On June 30, 2021, Singleton Computers issued 7% stated rate bonds with a face amount of $200 million. The bonds mature on June 30, 2036 (15 years). The market rate of interest for similar bond issues was 4% (2.0% semiannual rate). Interest is paid semiannually (3.5%) on June 30 and December 31, beginning on December 31, 2021. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from...

On June 30, 2021, Singleton Computers issued 4% stated rate bonds with a face amount of...

On June 30, 2021, Singleton Computers issued 4% stated rate bonds with a face amount of $100 million. The bonds mature on June 30, 2036 (15 years). The market rate of interest for similar bond issues was 5% (2.5% semiannual rate). Interest is paid semiannually (2.0%) on June 30 and December 31, beginning on December 31, 2021. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from...

On June 30, 2021, L. N. Bean issued $11 million of its 8% bonds for $10...

On June 30, 2021, L. N. Bean issued $11 million of its 8% bonds for $10 million. The bonds were priced to yield 10%. Interest is payable semiannually on December 31 and July 1. If the effective interest method is used, how much bond interest expense should the company report for the 6 months ended December 31, 2021? Multiple Choice $460,000 $550,000 $440,000 $500,000

On June 30, 2021, Moran Corporation issued $4 million of its 8% bonds for $3.5 million....

On June 30, 2021, Moran Corporation issued $4 million of its 8% bonds for $3.5 million. The bonds were priced to yield 9.4%. The bonds are dated June 30, 2021. Interest is payable semiannually on December 31 and July 1. If the effective interest method is used, by how much should the bond discount be reduced for the six months ended December 31, 2021? Multiple Choice $3,500. $4,500. $4,800. $9,000.

On June 30, 2021, Moran Corporation issued $12.0 million of its 8% bonds for $10.8 million....

On June 30, 2021, Moran Corporation issued $12.0 million of its 8% bonds for $10.8 million. The bonds were priced to yield 10%. The bonds are dated June 30, 2021. Interest is payable semiannually on December 31 and July 1. If the effective interest method is used, by how much should the bond discount be reduced for the six months ended December 31, 2021?

cupola fan corporation issued 10% 400,000, 10-year bonds for 385000 on June 30, 2021.

cupola fan corporation issued 10% 400,000, 10-year bonds for 385000 on June 30, 2021. The debt issue costs were 1500. interest is paid semiannually on December 31 and June 30. one year from the issue date (July 1, 2022). the corporation exercised its call privilege and retired the bonds for 395000. the corporation uses the straight-line method both to determine interest expense and to amortize debt issue costs.

Cupola Fan Corporation issued 12%, $580,000, 10-year bonds for $552,000 on June 30, 2021. Debt issue...

Cupola Fan Corporation issued 12%, $580,000, 10-year bonds for $552,000 on June 30, 2021. Debt issue costs were $3,300. Interest is paid semiannually on December 31 and June 30. One year from the issue date (July 1, 2022), the corporation exercised its call privilege and retired the bonds for $560,000. The corporation uses the straight-line method both to determine interest expense and to amortize debt issue costs. Required: 1. to 4. Prepare the journal entry to record the issuance of...

Cupola Fan Corporation issued 12%, $460,000, 10-year bonds for $450,000 on June 30, 2021. Debt issue...

Cupola Fan Corporation issued 12%, $460,000, 10-year bonds for $450,000 on June 30, 2021. Debt issue costs were $2,100. Interest is paid semiannually on December 31 and June 30. One year from the issue date (July 1, 2022), the corporation exercised its call privilege and retired the bonds for $455,000. The corporation uses the straight-line method both to determine interest expense and to amortize debt issue costs. Required: 1. to 4. Prepare the journal entry to record the issuance of...

1. Grant Inc. issued $400,000 of 6% bonds on June 30, 2016. The bonds mature in...

1. Grant Inc. issued $400,000 of 6% bonds on June 30, 2016. The bonds mature in 10 years. For bonds of similar risk and maturity, the market interest rate is 4%. Interest is paid semiannually on December 31 and June 30. (i.e., the first interest payment will be made on December 31, 2016). For all computations, ignore below decimal point. a) Determine whether the company sold the bond at discount or premium b) Determine the price of the bonds at...

On June 30, $185,000 of 5-year, 10% Orbit bonds are issued at $171,383 to yield a...

On June 30, $185,000 of 5-year, 10% Orbit bonds are issued at $171,383 to yield a market interest rate of 12%. Interest is payable semi-annually each June 30 and December 31. (a) Record the purchase of these bonds on June 30 and the receipt of the first interest payment on December 31 on the books of the investor assuming the bonds are to be held to maturity. (Credit account titles are automatically indented when the amount is entered. Do not...