Question

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?

Complete this question by entering your answers in the tabs below.

• Req 1 and 2
• Req 3

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.)

No	Date	General Journal	Debit	Credit
1	January 01	Cashselected answer= correct	1,514,065 incorrect
		Premium on bonds payable = incorrect		94,065= incorrect
		Bonds payable = incorrect		1,420,000= incorrect
2	June 30	Interest expense=correct	45,042selected answer incorrect
		Premium on bonds payable= incorrect	11,758=incorrect
		Cash = correct		56,800=correct

What bonds payable amount will Victor report on its June 30 balance sheet?

	VICTOR CORPORATION Balance Sheet (Partial) At June 30 Long-term liabilities Bonds payable = correct $1,420,000= incorrect Premium on bonds payable= incorrect $82,307= incorrect $1,502,307

Answer 1

summary of the date provided in the questions is as follows

face value of bond	14,20,000
Coupn rate	8%
Market interest rate	6%
Maturity year	4
Interest payment	Semi annual

1

Date	Particular	Dr Amt	Cr Amt
Jan-01	Cash Account	15,19,680
	To bond payable		14,20,000
	To premium on bond (151968000-1420000)		99,680
	(bond issued at premium
Jun-30	Interest Cost (56,800-12460)	44,340
	Premium on bond ({99680*(6month/12 months)} /4 years)	12,460
	To cash		56,800
	(interest paid and amortization of premium on bond pay recognized)

2.

Balance sheet (Extract) as on jun-30		Amt
Bond payable - Long term liabilities		14,20,000
Unamortized premium on bond payable ( (50893-6362)
* Short term (12460+12460)	24,920
* Long term (99680-12460 of jan 30 - 24920 within next balance sheet year)	62,300	87,220

Working note

year	Interest	PV facotr @ 6%	Present value
A	B	C	D=B XC
1	56,800	0.9709	55,146
2	56,800	0.9426	53,539
3	56,800	0.9151	51,980
4	56,800	0.8885	50,466
5	56,800	0.8626	48,996
6	56,800	0.8375	47,569
7	56,800	0.8131	46,184
8	56,800	0.7894	44,838
8	14,20,000	0.7894	11,20,961
	Present Value (a)	15,19,680
	Face value (B)	14,20,000
	Premium (a-b)	99,680

*Interest = 14,20,000 x 8% x 6 month/ 12months