In: Accounting
E10-23 (Algo) (Chapter Supplement) Recording and Reporting a Bond Issued at a Premium (Straight-Line Amortization without a Premium Account) LO 10-5
On January 1 of this year, Victor Corporation sold bonds with a face value of $1,420,000 and a coupon rate of 8 percent. The bonds mature in four years and pay interest semiannually every June 30 and December 31. Victor uses the straight-line amortization method and does not use a premium account. Assume an annual market rate of interest of 6 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answers to whole dollars.)
Required:
1.& 2. Prepare the journal entry to record the issuance of the bonds and the interest payment on June 30 of this year.
3. What bonds payable amount will Victor report on its June 30 balance sheet?
Prepare the journal entry to record the issuance of the bonds and the interest payment on June 30 of this year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Journal entry worksheet
Note: Enter debits before credits.
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Note: Enter debits before credits.
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Price of the bonds= | |||
Present value oF interest payments+Present value of face value | |||
(56000*PVA $1 (3%,8))+(1420000*PV of $1 (3%.8)) | |||
(56800*7.01969)+(1420000*.78941) | 1519681 | ||
rate=6%/2 | 3% | semi annualy | |
n=4*2 | 8 | periods | |
Interest payment=1420000*8%*1/2 | 56800 | ||
Premium on Bonds payable | |||
1514065-1420000 | 99681 | ||
Amortize in 8 periods | |||
per period amortization 94065/8 | 12460 |
ans 1 | ||||
Date | Accounts Title | DR | CR | |
Jan-01 | Cash | 1519681 | ||
Premium on Bonds payable | 99681 | |||
Bonds payable | 1420000 | |||
(being bond issued at premiu =m recorded) | ||||
Jun-30 | Interest expenses (56800-12460) | 44340 | ||
Premium on Bonds payable | 12460 | |||
Cash | 56800 | |||
(being interest paid recorded) | ||||
ans 3 | Balance Sheet | |||
Long term liabilities | ||||
Bonds payable | 1420000 | |||
Add: Premium on Bonds payable (99681-12460) | 87221 | 1507221 | ||
The difference in answer can be due to discount factor taken upto 3 deimal or decimal | ||||
As table is not mentioned so took upto 5 decimal |