Question

Exercise 10-10 Whitmore Company issued $408,500 of 5-year, 7% bonds at 99 on January 1, 2017. The bonds pay interest annually. Prepare the journal entry to record the issuance of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit SHOW LIST OF ACCOUNTS

Compute the total cost of borrowing for these bonds

. Total cost of borrowing $____________ SHOW LIST OF ACCOUNTS

Prepare the journal entry to record the issuance of the bonds, assuming the bonds were issued at 104. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit SHOW LIST OF ACCOUNTS

Compute the total cost of borrowing for these bonds, assuming the bonds were issued at 104.

Total cost of borrowing $___________

list of accounts:

Exercise 10-10

Accounts Payable Accounts Receivable Accumulated Depreciation-Equipment Bonds Payable Cash Common Stock Cost of Goods Sold Depreciation Expense Discount on Bonds Payable Equipment Federal Income Taxes Payable Federal Uemployment Taxes Payable FICA Taxes Payable Gain on Bond Redemption Income Tax Expense Income Tax Payable Insurance Expense Interest Expense Interest Payable Inventory Lease Liability Loss on Bond Redemption Mortgage Payable Notes Payable Notes Receivable Other Operating Expenses Paid-in Capital in Excess of Par-Common Stock Payroll Tax Expense Preferred Stock Premium on Bonds Payable Prepaid Insurance Retained Earnings Salaries and Wages Expense Salaries and Wages Payable Sales Revenue Sales Taxes Payable Service Revenue State Income Taxes Payable State Unemployment Taxes Payable Subscription Revenue Ticket Revenue Unearned Service Revenue Unearned Subscription Revenue Unearned Ticket Revenue

Answer 1

Solution:

Part 1 -- Journal entry to record the issuance of the bonds

Issue Price of Bonds = $408,500*99% = $404,415

Face Value of the bonds = 408,500

Issue price is less than face value, it means bonds are issued at discount.

Discount on Bonds Payable = $408,500 - $404,415 = $4,085

Date	General Journal	Debit	Credit
Jan.1, 2017	Cash	$404,415
	Discount on Bonds Payable (bal fig)	$4,085
	Bonds Payable		$408,500

Total Cost of Borrowing = Cash Interest + Face Value of Bonds – Cash Received

= (408,500*7%*5 Yrs) + (408,500 – 404,415)

= $142,975 + 4085

= $147,060

Part 2 – Journal entry to record the issuance of the bonds, assuming the bonds were issued at 104

Issue Price of Bonds = $408,500*104% = $424,840

Face Value of the bonds = 408,500

Issue price is higher than face value, it means bonds are issued at premium.

Discount on Bonds Payable = $424,840 - $408,500 = $16,340

Date	General Journal	Debit	Credit
Jan.1, 2017	Cash	$424,840
	Bonds Payable		$408,500
	Premium on Bonds Payable (bal fig)		$16,340

Total Cost of Borrowing = Cash Interest + Face Value of Bonds – Cash Received

= (408,500*7%*5 Yrs) + (408,500 – 424,840)

= $142,975 – 16,340

= $126,635

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