On June 30, 2017, Sneezy purchased $75,000, 10%, 12 year bonds of Huntsman Corporation for $78,000...

On June 30, 2017, Sneezy purchased $75,000, 10%, 12 year bonds of Huntsman Corporation for $78,000 cash. The bonds pay interest semi-annually each June 30 and December 31. Straight-line amortization is used when necessary. On December 31, 2017, the market price of the bonds was $78,500. (Hint: you may want to identify face, stated rate, annual interest, semi-annual interest, price, and premium/discount) Assuming the bonds were purchased as available for sale securities, indicate the financial statement presentation of the investment related accounts on December 31, 2017. Be sure to indicate whether the account appears on the income statement or balance sheet and the amounts.

Solutions

Expert Solution

The Premium on issue of Bond = $78000 - $75000 = $3000

The Straight line amortization, the Semiannual amortization = 3000/24 = 125

The Semiannual Interest payment = $75000 x 10%/2= 3750

Journal Entries will be as follows

	Particular	Debit	Credit
(a)	The Cash	78000
	The Premium on Issue of Bonds		3000
	The Bonds payable		75000
b)	Interest payments
Dec 31, 17	The Interest Expense	3750
	The Premium on Issue of Bonds	125
	The Cash		3875

Jun 30, 18	The Interest Expense	3750
	The Premium on Issue of Bonds	125
	The Cash		3875

Dec 31,18	The Interest Expense	3750
	The Premium on Issue of Bonds	125
	The Cash		3875

Under Balance sheet

	2017	2018
The Bonds Payable	75000	75000
The Premium on Issue of Bonds	2875	2625
The Cash	74125	66375
The Interest Expense	3750	7500

ekkarill92 answered 1 year ago

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