Question

Final on Chapter 14 - to be completed ASAP and no later than Friday, May 8, 2020. Please e-mail the completed test to me at [email protected] and/or to [email protected]. This test is emailed to you. It also can be located (in Canvas under Assignments) and on portal. The test can be completed using the template previously provided to you. Listed below are the 5 problems: 14-1 Final, 14-3 Final, 14-5 Final, 14-8 Final, and 14-9 Final.
14-1 On 1/1/2017 Boston Enterprises issues semiannual interest bonds. The bonds have a $4,000,000 par value, mature in 20 years, and pay 8% interest annually. The bonds are sold at par. 1. How much interest will Boston pay (in cash) to bondholders every six months? 2. Prepare journal entries to record : (a) the issuance of bonds on January 1, 2017; (b) the first interest payment on June 30, 2017; and (c) the second interest payment on December 31, 2017. 3. Prepare journal entry for issuance assuming the bonds are issued at (a) 96 and (b) 106.

14-3 Bringham Company issues 10 year, annual interest 6%, semiannual interest paying, par value $600,000 bonds. On the issue date, the annual market rate for the bonds is 8%. 1.What is the amount of each semiannual interest payment on these bonds? 2. How many semiannual interest payments will be made on these bonds over their life? 3. Use the interest rates given to determine whether the bonds are issued at par, at a discount, or at a premium. 4.Compute the price of the bonds as of their issue date. 5. Prepare the journal entry to record the bonds’ issuance.

14-5 On 12/31/2017 Dobbs Company issues 5%, two-year bonds with a par value of $300,000 and semiannual interest payments. Use the following bond amortization table and prepare journal entries to record (a) the issuance of bonds on December 31, 2017; (b) the first through fourth interest payments on each June 30th and December 31st; and (c) the maturity of the bonds on December 31, 2019. Semiannual Period End Unamortized Discount Carrying Value 0 12/31/2017 $18,000 $282,000 1 6/30/2018 $13,500 $286,500 2 12/31/2018 $9,000 $291,000 3 6/30/2019 $4,500 $295,500 4 12/31/2019 0 $100,000

14-8 Citywide Company issues bonds with a par value of $400,000 on their stated issue date. The bonds mature in five years and pay 10% interest in semiannual payments. On the issue date the annual market rate for the bonds is 8%. %. 1.What is the amount of each semiannual interest payment on these bonds? 2. How many semiannual interest payments will be made on these bonds over their life? 3. Use the interest rates given to determine whether the bonds are issued at par, at a discount, or at a premium. 4.Compute the price of the bonds as of their issue date. 5. Prepare the journal entry to record the bonds’ issuance.

14-9 On 1/1/2017 Shay issues $600,000, 10 %, 15-year bonds at 97 3/4. Six years into the life of the bonds, on January 1, 2023, Shay retires 30% of these bonds on the open market at 104 ½. The straight-line method is used to amortize the discount. 1. How much does the company receive when it issues the bonds on 1/1/2017? 2.What is the amount of the discount on the bonds at January 1, 2017? 3. How much of the discount is recorded on the bonds for the entire period from January 1, 2017 through December 31, 2022? 4. What is the carrying value (book value) of the bonds as of the close of business on December 31, 2022? 5. How much did the company pay on January 1, 2023 to purchase the bonds that it retired? 6. What is the amount of gain or loss from retiring the bonds? 7. Prepare the journal entry to record the bond retirement on January 1, 2023.

Answer 1

14-1: 1) Semi annual interest payout = 40,00,000 * 4% = $ 160000

2)

01-01-2017	Cash	Debit $ 4000000
	8% bonds	Credit $ 4000000
30-06-2017	Interest expense	Debit $ 160000
	Cash	Credit $ 160000
31-12-2017	Interest expense	Debit $ 160000
	Cash	Credit $ 160000

3) a) 96

Cash (4000000/100*106)	Debit $ 3840000
Discount on bonds (B1 +)	Debit $ 160000
8% bonds	Credit $ 4000000

3) b) 106

Cash (4000000/100*106)	Debit $ 4240000
8% bonds	Credit $ 4000000
Premium on bonds	Credit $ 240000

14-3:

1) Semi annual interest payment = 600000 * 3% = $180000

2) Number of payments = 10 years * 2 = 20

3) Discount: Market rate (8%) > Stated rate (6%)

4) Price of Bond = 18000 * 13.590 + 600000 * 0.456 = $ 518220

5) Entry:

Cash	Debit $ 518220
Discount on bond	Debit $ 81780
6% bonds	Credit $ 600000

14-5 a) 12/31/2017

Cash	Debit $ 282000
Discount on bond	Debit $ 18000
5% bonds	Credit $ 300000

b)

6/30/2018	Interest expense	Debit $ 12000
	Discount on bond (18000 - 13500)	Debit $ 4500
	Cash	Credit $ 7500
12/31/2018	Interest expense	Debit $ 12000
	Discount on bond (13500 - 9000)	Debit $ 4500
	Cash	Credit $ 7500
6/30/2019	Interest expense	Debit $ 12000
	Discount on bond (9000 - 4500)	Debit $ 4500
	Cash	Credit $ 7500
12/31/2019	Interest expense	Debit $ 12000
	Discount on bond (4500 - 0)	Debit $ 4500
	Cash	Credit $ 7500

c)

12/31/2019	5% bonds	Debit $ 300000
	Cash	Credit $ 300000

14-8:

1)Semi annual interest payment = 400000 * 10% * 1/2 = $20000

2) Number of payments = 5 years * 2 = 10

3) Premium: Market rate (8%) < Stated rate (10%)

4) issue price: 20000 * 8.111 * 400000* 0.676 = $ 432620

5) Issue:

Cash	Debit $ 432620
10% bonds	Credit $ 400000
Premium on bonds	Credit $ 32620