Question

Reporting Financial Statement Effects of Bond Transactions
On January 1, 2016, Shields, Inc., issued $500,000 of 9%, 20 -year bonds for $549,482, yielding a market (yield) rate of 8%. Semiannual interest is payable on June 30 and December 31 of each year.

a. Show computations to confirm the bond issue price.

Round answers to the nearest whole number.

Present value of principal repayment			$Answer
Present value of interest payments			Answer
Selling price of bonds			$Answer

b. Prepare journal entries to record the bond issuance, semiannual interest payment and premium amortization on June 30, 2016, and semiannual interest payment and premium amortization on December 31, 2016. Use the effective interest rate method.

Round answers to the nearest whole number.

General Journal
Date	Description	Debit	Credit
1/1/16	AnswerCashBond premiumBonds payableInterest expense	Answer	Answer
	AnswerCashBond premiumBonds payableInterest expense	Answer	Answer
	Bonds payable	Answer	Answer
6/30/16	Interest expense	Answer	Answer
	AnswerCashBond premiumBonds payableInterest expense	Answer	Answer
	AnswerCashBond premiumBonds payableInterest expense	Answer	Answer
12/31/16	Interest expense	Answer	Answer
	AnswerCashBond premiumBonds payableInterest expense	Answer	Answer
	AnswerCashBond premiumBonds payableInterest expense	Answer	Answer

c. Post the journal entries from part b to their respective T-accounts.

Cash
	Answer	Answer
	Answer	Answer

Bond Premium
	Answer	Answer
	Answer	Answer

Bond Payable
	Answer	Answer

Interest Expense
	Answer	Answer
	Answer	Answer

d. Record each of the transactions from part b in the financial statement effects template.

Use rounded answers from above. When applicable, enter the total amount for liabilities. Use negative signs with answers, when appropriate.

Transaction					Cash Asset		+	Noncash Assets		=	Liabilities		+	Contr. Capital	+	Earned Capital		Revenue	-	Expenses	=	Net income
1/1/16 Issue bonds					$Answer			$Answer			$Answer			$Answer		$Answer		$Answer		$Answer		$Answer
6/30/16 Interest payment on bonds					Answer			Answer			Answer			Answer		Answer		Answer		Answer		Answer
12/31/16 Interest payment on bonds					Answer			Answer			Answer			Answer		Answer		Answer		Answer		Answer

Answer 1

	Ans a			Answer in $
	Present value of principal repayment	500000/(1.04)^40	50000*.2083	104150
	Present value of interest payments	22500*(1-(1.04)^-40)/.04)	22500*(1-.2083)/.04	445332
	Selling price of bonds			549482
	Intetest payment 500000*9%*1/2	22500
	ans b
	Accounts Title	Dr	Cr
1/1/2016	Cash	549482
	Bonds Payale		500000
	Bond Premium		49482
6/30/2016	Interest expenses (549482*4%)	21979
	Bond Premium (bal fig)	$521
	Cash		$22,500
12/31/2016	Interest expenses (549482-521)*4%)	21958
	Bond Premium	$542
	Cash		$22,500
ans c
		Cash
1/1/2016	Bonds Payale	500000	Interest expenses	21979
1/1/2016	Bond Premium	49482	Bond Premium (bal fig)	521
			Interest expenses	21958
			Bond Premium (bal fig)	542
	Bond premium
30-Jun-16	Cash	$521	1/1/2016	49482
31-Dec-16	CAsh	$542
	Bonds payable
			1/1/2016	500000
	Interest expenses
30-Jun-16	Cash	21979
31-Dec-16	CAsh	21958
ans d
	Transaction	Cash Asset	Noncash Assets	Liabilities	Contr. Capital	Earned Capital	Revenue	Expenses	Net income
	1/1/16 Issue bonds	549482		549482
	6/30/16 Interest payment on bonds	-22500		($521)		-21979		21979	-21979
	12/31/16 Interest payment on bonds	-22500		($542)		-21958		21958	-21958