Question

In: Accounting

On January 1, the first day of its fiscal year, Pretender Company issued $18,400,000 of five-year,...

On January 1, the first day of its fiscal year, Pretender Company issued $18,400,000 of five-year, 12% bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 14%, resulting in Pretender Company receiving cash of $17,107,672.

Required:

A. Journalize the entries to record the following (refer to the Chart of Accounts for exact wording of account titles):
1. Issuance of the bonds.
2. First semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.)
3. Second semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.)
B. Determine the amount of the bond interest expense for the first year.
C. Explain why the company was able to issue the bonds for only $17,107,672 rather than for the face amount of $18,400,000.

Solutions

Expert Solution

Date General Journal Debit Credit
A 1 Cash      17,107,672
Discount on bonds payable      1,292,328
Bonds Payable 18,400,000
2 Debit Bond Interest Expense      1,104,000
Cash                    1,104,000
(18,400,000 *12%*6/12)
3 Bond Interest Expense      1,233,233
Discount on Bonds Payable
(1292328/10)		                        129,233
Cash                    1,104,000
B the amount of the bond interest expense for the first year.
(1104000+1233233)
                                         2,337,233
C Since market rate was 14%, and coupon rate was only 12%, bonds sold at a discount in order to give the investor a 14% return

ekkarill92 answered 10 months ago
Next > < Previous

Related Solutions

On January 1, the first day of its fiscal year, Pretender Company issued $18,500,000 of five-year,...
On January 1, the first day of its fiscal year, Pretender Company issued $18,500,000 of five-year, 10% bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 12%, resulting in Pretender Company receiving cash of $17,138,298. Required: A. Journalize the entries to record the following (refer to the Chart of Accounts for exact wording of account titles): 1. Issuance of the bonds. 2....
On January 1, the first day of its fiscal year, Chin Company issued $10,000,000 of five-year,...
On January 1, the first day of its fiscal year, Chin Company issued $10,000,000 of five-year, 7% bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 8%, resulting in Chin Company receiving cash of $9,594,415. Required: A. Journalize the entries to record the following (refer to the Chart of Accounts for exact wording of account titles): 1. Issuance of the bonds. 2....
On January 1, the first day of the fiscal year pretenders company issued $24,200 of five...
On January 1, the first day of the fiscal year pretenders company issued $24,200 of five years, 11% bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannually. The bonds were issued at a market ( effective) interest rate of 13% resulting in pretender company receiving cash of $22,460,399 A. Journalize the entries to record the following 1. Issuance of the bond 2. First semiannual interest payment. The bond discount is combined with the...
On the first day of its fiscal year, Chin Company issued $16,800,000 of five-year, 4% bonds...
On the first day of its fiscal year, Chin Company issued $16,800,000 of five-year, 4% bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 6%, resulting in Chin Company receiving cash of $15,366,859. a. Journalize the entries to record the following: Issuance of the bonds. First semiannual interest payment. The bond discount amortization, using the straight-line method, is combined with the semiannual...
On the first day of its fiscal year, Ebert Company issued $17,000,000 of 5-year, 10% bonds...
On the first day of its fiscal year, Ebert Company issued $17,000,000 of 5-year, 10% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 11%, resulting in Ebert Company receiving cash of $16,359,296. The company uses the interest method. a. Journalize the entries to record the following: 1. Sale of the bonds. Round amounts to the nearest dollar. For a compound transaction, if an amount box does not require...
Amortize Discount by Interest Method On the first day of its fiscal year, Ebert Company issued...
Amortize Discount by Interest Method On the first day of its fiscal year, Ebert Company issued $50,000,000 of 10-year, 7% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 9%, resulting in Ebert Company receiving cash of $43,495,895. The company uses the interest method. b. Compute the amount of the bond interest expense for the first year. Round amounts to the nearest dollar.
Amortize Discount by Interest Method On the first day of its fiscal year, Ebert Company issued...
Amortize Discount by Interest Method On the first day of its fiscal year, Ebert Company issued $18,000,000 of 5-year, 10% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 12%, resulting in Ebert Company receiving cash of $16,675,281. The company uses the interest method. a. Journalize the entries to record the following: 1. Sale of the bonds. Round amounts to the nearest dollar. For a compound transaction, if an...
On January 1, 2020 (the first day of its fiscal year) Vaughn Ltd. acquired a patent...
On January 1, 2020 (the first day of its fiscal year) Vaughn Ltd. acquired a patent which gave the company the right to use a production process. The process met the six criteria for capitalization as an intangible asset. Below is a listing of the events relating to the patent over the five fiscal years from 2020 through 2024: 2020: ● on January 1, acquired the patent for the production process from its inventory for a cash payment of $12,800,000,...
On January 1, 2020 (the first day of its fiscal year) Wildhorse Ltd. acquired a patent...
On January 1, 2020 (the first day of its fiscal year) Wildhorse Ltd. acquired a patent which gave the company the right to use a production process. The process met the six criteria for capitalization as an intangible asset. Below is a listing of the events relating to the patent over the five fiscal years from 2020 through 2024: 2020: ● on January 1, acquired the patent for the production process from its inventory for a cash payment of $17,400,000,...
On January 1, 2017, the first day of its fiscal year, Carter City received notification that...
On January 1, 2017, the first day of its fiscal year, Carter City received notification that a federal grant in the amount of $580,000 was approved. The grant was restricted for the payment of wages to teenagers for summer employment. The terms of the grant permitted reimbursement only after qualified expenditures have been made; the grant could be used over a two-year period. The following data pertain to operations of the SUMMER EMPLOYMENT GRANT FUND, a special revenue fund of...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT