Impact of a Discount Berol Corporation sold 20-year bonds on January 1, 2017. The face value...

Impact of a Discount

Berol Corporation sold 20-year bonds on January 1, 2017. The face value of the bonds was $100,000, and they carry a 9% stated rate of interest, which is paid on December 31 of every year. Berol received $95,350 in return for the issuance of the bonds when the market rate was 10%. Any premium or discount is amortized using the effective interest method.

1. How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item.

1.5. Prepare a proper balance sheet presentation for January 1, 2017.

2. Identify and analyze the effect of the payment of interest on December 31, 2017.

- Activity

- Accounts

- Statement (s)

2.5 How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item. Round the amounts to the nearest whole dollar.

2.6. Prepare a proper balance sheet presentation for December 31, 2017.

3. Why it was necessary for Berol to issue the bonds for only $95,350 rather than $100,000?

Because the (CHOOSE ONE - CONTRA INTEREST RATE/ MARKET RATE) of interest was greater than the (CHOOSE ONE - CONTRA INTEREST RATE/ MARKET RATE) the issuance price will have to be lower than the face value.

Solutions

Expert Solution

Because, market rate of interest was greater than the contra interest rate.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

On January 1, 2017, Swifty Corporation sold 12% bonds with a face value of $2600000. The...

On January 1, 2017, Swifty Corporation sold 12% bonds with a face value of $2600000. The bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $2800800 to yield 10%. Using the effective-interest method of amortization, interest expense for 2017 is a $280030. b $312000. c $260000. d $279282.

On January 1 of this year, Victor Corporation sold bonds with a face value of $1,560,000...

On January 1 of this year, Victor Corporation sold bonds with a face value of $1,560,000 and a coupon rate of 10 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 also uses a premium account. Assume an annual market rate of interest of 8 percent. 1. Prepare the journal entry to record the issuance of the bonds. 2. Prepare the journal entry to record...

On January 1 of this year, Victor Corporation sold bonds with a face value of $1,560,000...

On January 1 of this year, Victor Corporation sold bonds with a face value of $1,560,000 and a coupon rate of 10 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 also uses a premium account. Assume an annual market rate of interest of 8 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the...

1. On January 1, 2017, bonds with a face value of $94,000 were sold. The bonds...

1. On January 1, 2017, bonds with a face value of $94,000 were sold. The bonds mature on January 1, 2027. The face interest rate is 8% annually. The bonds pay interest semiannually on July 1 and January 1. The market rate of interest is 10% annually. What is the market price of the bonds? The present value of $1 for 20 periods at 5% is 0.377. The present value of an ordinary annuity of $1 for 20 periods at...

22) On January 1, 2017, bonds with a face value of $94,000 were sold. The bonds...

22) On January 1, 2017, bonds with a face value of $94,000 were sold. The bonds mature on January 1, 2027. The stated interest rate is 8% annually. The bonds pay interest semiannually on July 1 and January 1. The market rate of interest is 10% annually. What is the market price of the bonds? (Round your final answer to the nearest dollar.)

Richter Corporation sold $1,000,000 face value of bonds at 104 on January 1, 2014. These bonds...

Richter Corporation sold $1,000,000 face value of bonds at 104 on January 1, 2014. These bonds have a 7% stated rate and mature in 4 years. Interest is payable on June 30 and December 31 of each year. Prepare the journal entry at issuance on January 1, 2014. Prepare the journal entry to record the first interest payment on June 30, 2014. Calculate the carrying value of the bond on Dec. 31, 2014, after the first two interest payments. Prepare...

On January 1, 2017, Crawford Corporation issued five-year, 4% bonds payable with a face value of...

On January 1, 2017, Crawford Corporation issued five-year, 4% bonds payable with a face value of $2,600,000. The bonds were issued at 88 and pay interest on January 1 and July 1. Crawford amortizes bond discounts using the straight-line method. On December 31, 2019, Crawford retired the bonds early by purchasing them at a market price of 94. The company's fiscal year ends on December 31. 1. Journalize the issuance of the bonds on January 1, 2017. 2. Record the...

January 1, 2018: Nexxon corporation issued 20 year, 9% bonds with a face value of $2,000,0000....

January 1, 2018: Nexxon corporation issued 20 year, 9% bonds with a face value of $2,000,0000. the bonds were sold to yield 10%. Interest is payable semi-annually on january 1 and July 1. Effective rate amortization is to be used. 1. what is the issue price of the bonds? 2. Using EXCEL, prepare an amortization table for the entire bond term. 3. Record the bond issuance on 1/1/18 4. assume the company prepares financial statements semi-annually on June 30 and...

On March 1, 2017, Oriole Company sold 24,600 of its 7%, 20-year, $1,000 face value bonds...

On March 1, 2017, Oriole Company sold 24,600 of its 7%, 20-year, $1,000 face value bonds at 97. Interest payment dates are March 1 and September 1, and the company uses the straight-line method of bond discount amortization. On February 1, 2018, Oriole took advantage of favorable prices of its stock to extinguish 2,850 of the bonds by issuing 150,700 shares of its $1 par value common stock. At this time, the accrued interest was paid in cash. The company’s...

On January 2, 2020, a calendar-year corporation sold 6% bonds with a face value of $3220000....

On January 2, 2020, a calendar-year corporation sold 6% bonds with a face value of $3220000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $2959000 to yield 8%. Using the effective-interest method of computing interest, how much should be charged to interest expense in 2020? a. $237590. b. $236720. c. $257600. d. $193200.

Subjects