Question

In: Accounting

$500,000 of bonds of Tom Turkey Co. were sold on December 1, 20A at $518,375 plus...

$500,000 of bonds of Tom Turkey Co. were sold on December 1, 20A at $518,375 plus accrued interest. The bonds pay 6% interest annually. Interest payments are made on February 28 and August 31. The bonds were dated September 1, 20A and have a 9 year life. Tom Turkey has a fiscal year end of August 31.

*Looking for andswers to questions 6-9

Required:

1.What is the amount of interest that will be paid to the bondholders on a monthly basis?

2.What is the amount of accrued interest the bondholders will be Required to pay when they purchase the bonds on December 1, 20A?

3.What is the amount of discount or premium?

4.Over what period of time should the discount or premium be amortized?

5.What would be the amortization amount per month assuming straight-line amortization?

6.Give the journal entry to record the sale of the bonds on December 1, 20A

7.Give the journal entry to record the semiannual interest payment on February 28, 19B, including the amortization of any premium or discount.

8.Give the journal entry to record the semiannual interest payment on August 31, 19B, including the amortization of any premium or discount.

9. Show how the bonds would be reported on the classified balance sheet at the fiscal year end August 31, 19B.

Solutions

Expert Solution

1.What is the amount of interest that will be paid to the bondholders on a monthly basis?

Annual interest = 6% x 500000 = 30000, monthly interest = 30000/12 = 2500 per month

2.What is the amount of accrued interest the bondholders will be Required to pay when they purchase the bonds on December 1, 20A?

Bond accrued interest is for 3 months so , total accrued interest on Dec 1 is : 2500 x 3 months = 7500

3.What is the amount of discount or premium?

Amount of premium is : 518375-500000 = 18375

4.Over what period of time should the discount or premium be amortized?

Total period is 9 years i.e. 108 months and 3 mnths already passed so remaining amortization period is 105 months

5.What would be the amortization amount per month assuming straight-line amortization?

Amortization amount per month is : 18375/105 = 175 per month

6.Give the journal entry to record the sale of the bonds on December 1, 20A

Date

Account titles

Debit

Credit

Dec 1, 20A

Cash

$ 525,875

Bonds Payable

$ 500,000

Interest Expense

$ 7,500

Premium on bonds payable

$ 18,375

7.Give the journal entry to record the semiannual interest payment on February 28, 19B, including the amortization of any premium or discount.

Date

Account titles

Debit

Credit

Dec 1, 20A

Interest Expense

$ 14,475

Premium on bonds payable

$ 525

(175 x 3 Months)

Cash

$ 15,000

8.Give the journal entry to record the semiannual interest payment on August 31, 19B, including the amortization of any premium or discount.

Date

Account titles

Debit

Credit

Dec 1, 20A

Interest Expense

$ 13,950

Premium on bonds payable

$ 1,050

(175 x 6 Months)

Cash

$ 15,000

9. Show how the bonds would be reported on the classified balance sheet at the fiscal year end August 31, 19B.

Partial balance sheet

Long term liabilities

Bonds Payable

500000

Add: Premium on bonds payable

16800

$ 516,800

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Wildhorse Co. sold $3,200,000, 9%, 10-year bonds on January 1, 2022. The bonds were dated January...

Wildhorse Co. sold $3,200,000, 9%, 10-year bonds on January 1, 2022. The bonds were dated January 1, 2022, and pay interest on January 1. The company uses straight-line amortization on bond premiums and discounts. Financial statements are prepared annually. Prepare the journal entries to record interest expense for 2022 under both of the bond issuances assuming they sold at: (1) 101 and (2) 98. Show the long-term liabilities balance sheet presentation for issuance of the bonds sold at 101 at...

Saylor Co. sold $3,000,000, 8%, 10-year bonds on January 1, 2017. The bonds were dated January...

Saylor Co. sold $3,000,000, 8%, 10-year bonds on January 1, 2017. The bonds were dated January 1, 2017, and pay interest on January 1. The company uses straight-line amortization on bond premiums and discounts. Financial statements are prepared annually. a. Prepare the journal entries to record the issuance of the bonds assuming they sold at: (1) 103 and (2) 98. b. Prepare an amortization table for issuance of the bonds sold at 103 for the first three interest payments. c....

Sandhill Co. sold $3,300,000, 7%, 10-year bonds on January 1, 2017. The bonds were dated January...

Sandhill Co. sold $3,300,000, 7%, 10-year bonds on January 1, 2017. The bonds were dated January 1, 2017, and pay interest on January 1. The company uses straight-line amortization on bond premiums and discounts. Financial statements are prepared annually. Show the long-term liabilities balance sheet presentation for issuance of the bonds sold at 104 at December 31, 2017. Show the long-term liabilities balance sheet presentation for issuance of the bonds sold at 97 at December 31, 2017.

Callous, Co. sold $1 million in bonds, all of which were bought by Durandal. When Callous...

Callous, Co. sold $1 million in bonds, all of which were bought by Durandal. When Callous pays interest to Durandal, what category of cash outflow is this payment?

P14.8 (1) Comprehensive Bonds Problem Standford Co. sells %500,000 of 10% bonds on march 1, 2019.

The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2022. The bonds yield 12%. Give entries through December 31, 2020. Prepare all the relevant journal entries from March 1, 2019 until March 1, 2020. (The company closes its books on December 31).

1. On January 1, 2017, bonds with a face value of $94,000 were sold. The bonds...

1. On January 1, 2017, bonds with a face value of $94,000 were sold. The bonds mature on January 1, 2027. The face interest rate is 8% annually. The bonds pay interest semiannually on July 1 and January 1. The market rate of interest is 10% annually. What is the market price of the bonds? The present value of $1 for 20 periods at 5% is 0.377. The present value of an ordinary annuity of $1 for 20 periods at...

On January 1, 2020, Aumont Company sold 12% bonds having a maturity value of $500,000 for...

On January 1, 2020, Aumont Company sold 12% bonds having a maturity value of $500,000 for $537,907, which provides the bondholders with a 10% yield. The bonds are dated January 1, 2020, and mature January 1, 2025, with interest payable December 31 of each year. Aumont Company allocates interest and unamortized discount or premium on the effective-interest basis. Prepare the journal entry at the date of the bond issuance. (Round answer to 0 decimal places, e.g. 38,548. If no entry...

22) On January 1, 2017, bonds with a face value of $94,000 were sold. The bonds...

22) On January 1, 2017, bonds with a face value of $94,000 were sold. The bonds mature on January 1, 2027. The stated interest rate is 8% annually. The bonds pay interest semiannually on July 1 and January 1. The market rate of interest is 10% annually. What is the market price of the bonds? (Round your final answer to the nearest dollar.)

8. On May 1, 2012, Marly Co. issued $500,000 of 7% bonds at 103, which are...

8. On May 1, 2012, Marly Co. issued $500,000 of 7% bonds at 103, which are due on April 30, 2022. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Marly’s ordinary shares $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2012, the fair value of Marly’s shares was $35 per share and of the warrants was $2. On May 1, 2012,...

The Pennington corporation issued bonds on January 1, 1987. The bonds were sold at par had...

The Pennington corporation issued bonds on January 1, 1987. The bonds were sold at par had 12% annual coupon paid semi-annually and mature December 31, 2016. a) What was the Yield-to-Maturity (YTM) on the date the bonds were issued? b) What was the price on January 1, 1992, assuming interest rates have fallen to 10%? c) Find the current yield, capital gains/losses yield and total yield on January 1, 1992?

Subjects