Question

Serotta Corporation is planning to issue bonds with a face value of $380,000 and a coupon rate of 12 percent. The bonds mature in two years and pay interest quarterly every March 31, June 30, September 30, and December 31. All of the bonds were sold on January 1 of this year. Serotta uses the effective-interest 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 tables provided.) 11.value: 10.00 pointsRequired information

1. Provide the journal entry to record the issuance of the bonds January 1.(If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answers to nearest whole dollar amount.)

2. Provide the journal entry to record the interest payment on March 31, June 30, September 30, and December 31 of this year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answers to nearest whole dollar amount.)

Required information 3. What bonds payable amount will Serotta report on this year's December 31 balance sheet? (Round your final answers to nearest whole dollar amount.)

Answer 1

Issue price:
Present value of interest Quarterly received for 2 years i.e. 8 payment at 3%								83510.7
($ 11400 * Annuity factor for 8 period at 3% i.e. 7.3255)
Present value of Maturity received at year-2 ($380000* 0.8535)								324330
ISSUE PRICE								407841
Journal Entry:
a.	Cash Account Dr.					407841
	Bonds payable						380000
	Premium on Bonds payable						27841
31-Mar	Interest Expesnse Dr.					8157
	Premium On Bonds payable Dr.					3243
	Cash Aaccount						11400
30-Jun	Interest Expesnse Dr.					8092
	Premium On Bonds payable Dr.					3308
	Cash Aaccount						11400
30-Sep	Interest Expesnse Dr.					8026
	Premium On Bonds payable Dr.					3374
	Cash Aaccount						11400
31-Dec	Interest Expesnse Dr.					7958
	Premium On Bonds payable Dr.					3442
	Cash Aaccount						11400
Amortization table:
Date	cash Interest		Interest exp		Premium Amortizd		Unamortizwd Premium			Carrying value
31.03.	11400		8157		3243		24598			404598
30.06	11400		8092		3308		21290			401290
30.09	11400		8026		3374		17916			397916
31.12	11400		7958		3442		14474			394474
Balance Sheet:
Bonds payable				380,000
Add: Premium on Bonds payable				14474
Net balance in bonds payable				394,474