Question
In: Accounting
On September 30, Jose’s Jalapenos Inc., issued $1,000,000 of 10-year 9% bonds sated September 30, for...
On September 30, Jose’s Jalapenos Inc., issued $1,000,000 of 10-year 9% bonds sated September 30, for $1,067,950 an effective (market) rate of 8%. Interest is payable semi-annually on October 1 and April 1. The bonds were purchased by Juan’s Junk and Basura Inc. Present the entries to record the following transactions for the current year on BOTH sets of books: (Issuing Corporation and Investor)
-
Issuance of bonds
-
Accrual of interest and amortization for the period ended December 31. Use the effective interest method for the amortization not the straight-line method.
-
Redemption of the bonds on January 1 at 102.
THIS IS THE WORK I HAVE SO FAR. MY PROFESSOR SAYS I NEED TO ADD THE INVESTORS BOOKS. PLEASE HELP!
|
(A) |
Date |
General Journal |
Debit |
Credit |
||
|
Sep 30 |
Cash |
1,067,950 |
||||
|
Bonds payable |
1,000,000 |
|||||
|
Premium on bonds payable |
67,950 |
|||||
|
(B) |
Payment Date |
Cash Payment |
Interest Exp. |
Amortization of bond premium |
Carrying Value |
|
|
Sep 30, year |
1,067,950 |
|||||
|
April 1, year 1 |
45,000 |
42,718 |
2,282 |
1,065,668 |
||
|
Oct 1, year 1 |
45,000 |
42,627 |
2,373 |
1,063,295 |
||
|
Dec 31 |
Interest Expense |
21,359 |
(1,067,950 x 8% x 1/2 x 3/6) |
|||
|
Premium on bonds payable |
1,141 |
|||||
|
Interest Payable |
22,500 |
(1,000,000 x 9% x 1/2 x 3/6) |
||||
|
(C) |
Payment date |
Cash Payment |
Interest Exp. |
Amortization on of bond premium |
Carrying value |
|
|
Jan 1 |
Bonds Payable |
1,000,000 |
||||
|
Premium on bonds payable |
66,809 |
(67,950 - 1,141) |
||||
|
Cash |
1,020,000 |
(1,000,000 x 102/100) |
||||
|
Gain on redemption |
46,809 |
Solutions
Expert Solution
| Period | Interest payment | Interest Revenue @ 4% | Decrease in investment | Carrying value of bond investment |
| 0 | 1,067,950 | |||
| 1 | 45,000 | 42,718 | 2,282 | 1,065,668 |
| 2 | 45,000 | 42,627 | 2,373 | 1,063,295 |
| Interest payment = 1000000*9%*6/12 | 45,000 |
| Interest Revenue = previous period's Carrying value of bond investment * 4% | |
| Decrease in investment = Interest payment - Interest Revenue |
| Investor's Book | |||
| Date | General Journal | Debit | Credit |
| Sep 30, Year 1 | Bond Investment | 1,000,000 | |
| Premium - Investment in bond | 67,950 | ||
| Cash | 1,067,950 | ||
| (To record cash invested in long term bond.) | |||
| Dec 31, Year 1 | Interest receivable (1000000*9%*3/12) | 22,500 | |
| Interest revenue (42718*3/6) | 21,359 | ||
| Premium - Investment in bond (2282*3/6) | 1,141 | ||
| (To record accrrued interest revenue.) | |||
| Jan 1, Year 1 | Cash | 22,500 | |
| Interest receivable | 22,500 | ||
| (To record interest received before redemption.) | |||
| Jan 1, Year 1 | Cash (1000000*102%) | 1,020,000 | |
| Loss on disposal of investment | 46,809 | ||
| Bond Investment | 1,000,000 | ||
| Premium - Investment in bond (67950-1141) | 66,809 | ||
| (To record bond investment at early redemtion.) |
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