Chapter 10 Reporting and Interpreting Bonds 1 James Corporation is planning to issue 500 000 worth of bonds that mature in 10 years and pay 6 percent interest each June 30 and December 31 All of the bonds will be sold on January 1 2014 Compute the issue sale price on January 1 2014 for each of the following independent cases Case A Market yield rate 4 percent Case B Market yield rate 6 percent Case C Market yield rate 8 5 percent 2 On January 1 2014 Clearwater Corporation sold a 750 000 8 percent bond issue 9 percent market rate The bonds were dated January 1 2014 pay interest each December 31 and mature in 10 years Prepare the journal entry to record the issuance of the bonds Debit General journal Credit Prepare the journal entry to record the issuance of the bonds Use straight line amortization General journal Debit Credit Partial Income Statement Year 2014 Show how the interest expense and the bonds payable should be reported on the December 31 2014 annual financial statements 1 Partial Balance Sheet Year 2014 General journal Debit Credit General journal Debit Credit June 30 and December 31 and mature in four years 2 On January 1 2014 Park Corporation sold a 600 000 7 5 percent bond issue 8 5 percent market rate The bonds were dated January 1 2014 pay interest each Prepare the journal entry to record the issuance of the bonds Prepare the journal entry to record the interest payment on June 30 2014 Use effective interest amortization Show how the bond interest expense and the bonds payable should be reported on the June 30 2014 income statement and balance sheet 2 General journal Debit Credit January 1 2014 pay interest each June 30 and December 31 and mature in 10 years 3 On January 1 2014 Frog Corporation sold a 2 000 000 10 percent bond issue 8 5 percent market rate The bonds were dated Partial Balance Sheet Year 2014 Prepare the journal entry to record the issuance of the bonds Debit General journal Credit Partial Income Statement Year 2014 Prepare the journal entry to record the interest payment on June 30 2014 Use effective interest amortization Show how the bond interest expense and the bonds payable should be reported on the June 30 2014 income statement and balance sheet 3 4 Houston Company issued a 10 000 three year 5 percent bond on January 1 2014 The bond interest is paid each December 31 The bond was sold to yield 4 percent Complete a bond amortization schedule Use the effective interest method Interest Expense Cash Interest Date Net Liability Balance Premium Amortization 01 01 201 4 12 31 201 4 12 31 201 5 12 31 201 6 500 500 500 Partial Income Statement Year 2014 411 89 92 408 Partial Balance Sheet 404 96 Year 2014 10 277 10 189 10 097 10 000 What amounts will be reported on the income statement and balance sheet at the end of 2014 2015 and 2016 immediately before repayment of principal December 31 2014 2015 2016 Interest expense Bond liability 411 408 404 10 18 9 10 09 7 10 000 5 On January 1 2014 TCU Utilities issued 1 000 000 in bonds that mature in 10 years The bonds have a stated interest rate of 10 percent and pay interest on June 30 and December 31 each year When the bonds were sold the market rate of interest was 12 percent The company uses the effective interest amortization method What was the issue price on January 1 2014 What amount of interest expense should be recorded on a June 30 2014 and b December 31 2014 4 What amount of cash interest should be paid on a June 30 2014 and b December 31 2014 What is the book value of the bonds on a June 30 2014 and b December 31 2014 6 On January 1 2014 Cron Corporation issued 700 000 in bonds that mature in five years The bonds have a stated interest rate of 13 percent and pay interest on June 30 and December 31 each year When the bonds were sold the market rate of interest was 12 percent The company uses the effective interest amortization method What was the issue price on January 1 2014 What amount of interest expense should be recorded on a June 30 2014 and b December 31 2014 What amount of cash interest should be paid on a June 30 2014 and b December 31 2014 What is the book value of the bonds on a June 30 2014 and b December 31 2014 Chapter 10 Reporting and Interpreting Bonds 1 James Corporation is planning to issue 500 000 worth of bonds that mature in 10 years and pay 6 percent interest each June 30 and December 31 All of the bonds will be sold on January 1 2014 Compute the issue sale price on January 1 2014 for each of the following independent cases Case A Market yield rate 4 percent 500 000 0 6730 15 000 16 3514 Issue price market rate less than stated rate Case B Market yield rate 6 percent 500 000 0 5537 15 000 14 8775 Issue price market rate and stated rate same 336 500 245 271 581 771 at a premium 276 850 223 163 500 013 at par 13 rounding error 5 Case C Market yield rate 8 5 percent 500 000 0 4350 15 000 13 2944 Issue price market rate more than stated rate 217 500 199 416 416 916 at a discount 2 On January 1 2014 Clearwater Corporation sold a 750 000 8 percent bond issue 9 percent market rate The bonds were dated January 1 2014 pay interest each December 31 and mature in 10 years Interest 750 000 8 60 000 750 000 0 4224 60 000 6 4177 Issue price 316 800 385 062 701 862 Prepare the journal entry to record the issuance of the bonds General journal Cash Discount on bonds payable Bonds payable Debit 701 862 48 138 Credit 750 000 Prepare the journal entry to record the issuance of the bonds Use straight line amortization General journal Interest expense Discount on bonds payable Cash Debit 64 814 Credit 4 814 60 000 Show how the interest expense and the bonds payable should be reported on the December 31 2014 annual financial statements Unamortized discount 48 138 4 814 43 324 Interest expense 64 814 Partial Income Statement Year 2014 Partial Balance Sheet Year 2014 Long term liabilities Bonds payable Unamortized discount 750 000 43 324 706 676 6 2 On January 1 2014 Park Corporation sold a 600 000 7 5 percent bond issue 8 5 percent market rate The bonds were dated January 1 2014 pay interest each June 30 and December 31 and mature in four years Interest 600 000 7 5 1 2 22 500 600 000 0 7168 430 080 149 936 22 500 6 6638 Issue price 580 016 General journal Cash Discount on bonds payable Bonds payable Debit 580 016 19 984 General journal Interest …
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