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HKUST Inc. decided to issue a bond on January 1st, 2019 with a market interest rate...

HKUST Inc. decided to issue a bond on January 1st, 2019 with a market interest rate of 6%. However, HKUST Inc. decided to pay a coupon rate of 8%. The “face-value” of the bond was 10,000 dollars. This bond will be due on December 31st, 2020 and will be paid semi-annually on June 30th, and December 31st. HKUST Inc. uses the effective interest method.

On April 1st, 2019, HKUST Inc. also found out that the $14,000 value of Goodwill in Clearwater Inc. is actually worth $25,000 as ClearWater’s brand popularity has increased a lot.  

On Apr 30th, 2019, HKUST Inc. receives a notice from a real estate agent that the market value of the land that it bought from ClearWater Inc. for $10,000 is now worth $25,000 even after all the usage and wear and tear that happened on the land for the 5 months since Jan 1st, 2019. The land is expected to be used for 25 more months.  

On May 15th, 2019 HKUST Inc. gets hit with a major lawsuit from Hang Hau Inc. that accuses it of copying its patent for making screwdrivers. HKUST Inc. believes that it has a 45% chance of losing the case and would end up paying $15,000 if it lost. The case will end December 31st, 2019.

On May 31st, 2019 HKUST Inc. gets hit with a major lawsuit from Mong Kok Lawyers Inc. because of injuries caused to its workers who used the screwdrivers. HKUST Inc. believes that it has a 51% chance of losing the case and would end up paying $10,000 if it lost. The case will end December 31st, 2019.

Record all journal entries between January 1st, 2019 and December 31st, 2020

Solutions

Expert Solution

HKUST INC
JOURNAL ENTRIES FROM JANUARY 1,2019 TO DECEMBER 31,2020
DATE ACCOUNT DEBIT CREDIT
JAN 1,2019 CASH 10000
BONDS PAYABLE 9581.64
PREMIUM ON BONDS PAYABLE 418.36
APRIL 1,2019 FAIR VALUE OF ASSETS 25000
GOOD WILL 14000
GAIN ON IMPAIRMENT 11000
APRIL 30,2019 LAND 15000
REVALUATION RESERVE 15000
MAY 15, 2019 THERE IS NO NEED OF RECORDING BECAUSE THE PROBABILITY IS LESS THAN 50%
MAY 30, 2019 LAWSUIT LOSS 10000
LAWSUIT LIABILITY 10000
JUN 30,2019 INTEREST EXPENSE 300
PREMIUM ON BONDS PAYABLE 100
CASH 400
DEC 31,2019 INTEREST EXPENSE 297
PREMIUM ON BONDS PAYABLE 103
CASH 400
JUN 30,2020 INTEREST EXPENSE 293.91
PREMIUM ON BONDS PAYABLE 106.09
CASH 400
DEC 31, 2020 INTEREST EXPENSE 290.73
PREMIUM ON BONDS PAYABLE 109.27
CASH 400

ekkarill92 answered 1 year ago
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