On January 1, 2020, Linen Corp. issued $ 540,000 (face value), 10% annual interest, ten-year bonds...

On January 1, 2020, Linen Corp. issued $ 540,000 (face value), 10% annual interest, ten-year bonds at 97. The bonds are callable at 103. Linen has recorded amortization of the bond premium by the straight-line method. On December 31, 2025, Linen repurchased $ 200,000 of the bonds in the open market at 103. Bond interest expense and premium amortization have not been recorded for 2025.

Prepare the journal entries for December 31, 2025.

Solutions

Expert Solution

Answer:
Face Value of Bonds = $540,000
Issue Price of Bonds = $540,000 * 97%
Issue Price of Bonds = $523,800

Discount on Bonds Payable = Face Value of Bonds – Issue Price of Bonds
Discount on Bonds Payable = $540,000 - $523,800
Discount on Bonds Payable = $16,200

Life of Bonds = 10 years

Discount on Bonds Payable to be amortized annually = $16,200 / 10
Discount on Bonds Payable to be amortized annually = $1,620

No. of years expired = January 1, 2020 to December 31, 2025 = 6 years

Discount on Bonds payable amortized till December 31, 2025 = $1,620 * 6
Discount on Bonds payable amortized till December 31, 2025 = $9,720

Unamortized discount = $16,200 - $9,720 = $6,480

Carrying Value of Bonds on December 31, 2025 = Issue Price + Discount amortized
Carrying Value of Bonds on December 31, 2025 = $523,800 + $9,720
Carrying Value of Bonds on December 31, 2025 = $533,520

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

On January 1, 2020, Archer Company issued ten-year bonds with a face value of $10,000,000 and...

On January 1, 2020, Archer Company issued ten-year bonds with a face value of $10,000,000 and a stated interest rate of 4%, payable semiannually on June 30 and December 31. The bonds were sold to yield 3%. Instructions 1-Calculate the issue price of the bonds. 2-Record the bond issuance 3-Record the first interest payment and use the straight line method to amortize the discount or premium.

On January 1, 2020, Drilling Company issued ten-year bonds with a face value of $10,000,000 and...

On January 1, 2020, Drilling Company issued ten-year bonds with a face value of $10,000,000 and a stated interest rate of 4%, payable semiannually on June 30 and December 31. The bonds were sold to yield 3%. Instructions 1-Calculate the issue price of the bonds. 2-Record the bond issuance 3-Record the first interest payment and use the straight line method to amortize the discount or premium.

Seaside Corp. issued 10%, 5-year bonds with a face amount of $50,000 on January 1, 2020....

Seaside Corp. issued 10%, 5-year bonds with a face amount of $50,000 on January 1, 2020. The market interest rate for bonds of similar risk and maturity is 12%. Interest is paid semiannually on June 30 and December 31. Seaside uses the effective interest method to account for these bonds. What is the issue price of these bonds on January 1, 2020? Group of answer choices $50,000 $83,920 $53,605 $46,320

Appling Enterprises issued 10% bonds with a face amount of $540,000 on January 1, 2018. The...

Appling Enterprises issued 10% bonds with a face amount of $540,000 on January 1, 2018. The bonds sold for $496,675 and mature in 2037 (20 years). For bonds of similar risk and maturity the market yield was 11%. Interest is paid semiannually on June 30 and December 31. Appling determines interest expense at the effective rate. Appling elected the option to report these bonds at their fair value. The fair values of the bonds at the end of each quarter...

On January 1, 2020, Pharoah Company issued $305,500, 6%, 5-year bonds at face value. Interest is...

On January 1, 2020, Pharoah Company issued $305,500, 6%, 5-year bonds at face value. Interest is payable annually on January 1. Prepare the journal entry to record the issuance of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Jan. 1, 2020 SHOW LIST OF ACCOUNTS LINK TO TEXT Prepare the journal entry to record the accrual of interest on December 31, 2020. (Credit account titles...

On January 1, 2018, Rice Co. issued ten-year bonds with a face value of $5,000,000 and...

On January 1, 2018, Rice Co. issued ten-year bonds with a face value of $5,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are: Instructions Calculate the issue price of the bonds. Record the bond issuance Record the first interest payment

On January 1, 2021, Blossom Co. issued ten-year bonds with a face value of $6,100,000 and...

On January 1, 2021, Blossom Co. issued ten-year bonds with a face value of $6,100,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are: Present value of 1 for 10 periods at 10% 0.386 Present value of 1 for 10 periods at 12% 0.322 Present value of 1 for 20 periods at 5% 0.377 Present value of 1 for 20 periods at 6% 0.312...

On January 1, 2020, North Country Co issued 10-year, 7 percent bonds with a face value...

On January 1, 2020, North Country Co issued 10-year, 7 percent bonds with a face value of $1 million. The market rate for bonds of this class at the time of issue was 8%. Interest is payable annually, with the first payment due on December 31, 2020. a. Compute the issue price of the bonds. b. Show the journal entry to record the issuance of the bonds on January 1. c. Show the journal entry to record the first interest...

XYZ Corporation issued bonds on January 1, 2020 with a face value of $1,000, 10% stated...

XYZ Corporation issued bonds on January 1, 2020 with a face value of $1,000, 10% stated interest rate, with semi-annual payments, and a maturity date of December 31, 2024 (4 years). The market interest rate is 8%. Required: (Answers may be rounded to the nearest dollar) 1. Compute the market price of the bonds and the journal entry to record issuance of the bonds on January 1, 2020. 2. Record the journal entry for the first semi-annual interest payment on...

Linen Corp. sold $2,500,000 of 11%, 10-year bonds at 106.231 to yield 10% on January 1,...

Linen Corp. sold $2,500,000 of 11%, 10-year bonds at 106.231 to yield 10% on January 1, 2015. The bonds were dated January 1, 2015, and pay interest on July 1 and January 1. Determine the amount of interest expense to be reported on July 1, 2015, and December 31, 2015. Show all working in Detail

Subjects