P17-2 (Available-for-Sale Debt Securities) On January 1, 2010, Novotna Company purchased $400,000, 8% bonds of Aguirre Co for $369,114. The bonds were purchased to yield 10% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2015. Novotna Company uses the effective-interest method to amortize discount or premium. On January 1, 2012, Novotna Company sold the bonds for $370,726 after receiving interest to meet its liquidity needs.
a. Prepare journal entry to record purchase of bonds on Jan. 1. (Assume bonds are classified as available-for-sale.)
b. Prepare the amortization schedule for the bonds.
c. Prepare the journal entries to record the semiannual interest on July 1, 2010, and Dec. 31, 2010.
d. If fair value of Aguirre bonds is $372,726 on Dec. 31, 2011, prepare the necessary adjusting entry. (Assume the securities fair value adjustment balance on Jan 1, 2011 is a debit of $3,375.)
e. Prepare journal entry to record the sale of the bonds on Jan 1, 2012.
Click here for the solution: On January 1, 2010, Novotna Company purchased $400,000, 8% bonds of Aguirre Co for $369,114
Showing posts with label bonds. Show all posts
Showing posts with label bonds. Show all posts
Monday, March 21, 2016
Wednesday, November 25, 2015
On May 1, 2010, Kirmer Corp. purchased $450,000 of 12% bonds, interest payable on January 1 and July 1, for $422,800 plus accrued interest
On May 1, 2010, Kirmer Corp. purchased $450,000 of 12% bonds, interest payable on January 1 and July 1, for $422,800 plus accrued interest. The bonds mature on January 1, 2016. Amortization is recorded when interest is received by the straight-line method (by months and rounded to the nearest dollar). (Assume bonds are available for sale.)
Instructions
(a) Prepare the entry for May 1, 2010.
(b) The bonds are sold on August 1, 2011 for $425,000 plus accrued interest. Prepare all entries required to properly record the sale.
Click here for the solution: On May 1, 2010, Kirmer Corp. purchased $450,000 of 12% bonds, interest payable on January 1 and July 1, for $422,800 plus accrued interest
Instructions
(a) Prepare the entry for May 1, 2010.
(b) The bonds are sold on August 1, 2011 for $425,000 plus accrued interest. Prepare all entries required to properly record the sale.
Click here for the solution: On May 1, 2010, Kirmer Corp. purchased $450,000 of 12% bonds, interest payable on January 1 and July 1, for $422,800 plus accrued interest
On January 1, 2008. Phantom Company acquires $200,000 of Spiderman Products Inc,, 9% bonds at a price of $185,589
E17-5 (Effective-Interest versus Straight line bond amortization) On January 1, 2008. Phantom Company acquires $200,000 of Spiderman Products Inc,, 9% bonds at a price of $185,589. The interest is payable each December 31, and the bonds mature December 31, 2010. The investment will provide Phantom Company a 12% yield. The bonds are classified as held to maturity.
Instructions
a.) Prepare a 3 yr schedule of interest revenue and bond discount amortization, applying the straight line method.
b.) Prepare a 3 year schedule of interest revenue and bond discount amortization, applying effective interest method.
c.) Prepare the journal entry for the interest receipt of Dec 31, 2009, and the discount amortization under the straight line method.
d.) Prepare the journal entry for the interest receipt of Dec 31 2008, and the discount amortization under the effective interest method.
Click here for the solution: On January 1, 2008. Phantom Company acquires $200,000 of Spiderman Products Inc,, 9% bonds at a price of $185,589
Instructions
a.) Prepare a 3 yr schedule of interest revenue and bond discount amortization, applying the straight line method.
b.) Prepare a 3 year schedule of interest revenue and bond discount amortization, applying effective interest method.
c.) Prepare the journal entry for the interest receipt of Dec 31, 2009, and the discount amortization under the straight line method.
d.) Prepare the journal entry for the interest receipt of Dec 31 2008, and the discount amortization under the effective interest method.
Click here for the solution: On January 1, 2008. Phantom Company acquires $200,000 of Spiderman Products Inc,, 9% bonds at a price of $185,589
Wednesday, November 11, 2015
On January 1 2008, Hi and Lois Company purchased 12% bonds having a maturity value of $300,000 for $322,744.44
E17-3 (Entries for Held-to-Maturity Securities) On January 1 2008, Hi and Lois Company purchased 12% bonds having a maturity value of $300,000 for $322,744.44. The bonds provide the bondholders with a 10%yield. They are dated January 1, 2008, and mature January 1, 2013, with interest receivable Dec 21 of each year. Hi and Lois Company uses effective interest method to allocate unamortized discount or premium. The bonds are classified in the held to maturity category.
Instructions
a.) Prepare the journal entry at the date of the bond purchase.
b.) Prepare a bond amortization schedule.
c.) Prepare the journal entry to record the interest received and the amortization for 2008.
d.) Prepare the journal entry to record the interest received and the amortization for 2009.
Click here for the solution: On January 1 2008, Hi and Lois Company purchased 12% bonds having a maturity value of $300,000 for $322,744.44
Instructions
a.) Prepare the journal entry at the date of the bond purchase.
b.) Prepare a bond amortization schedule.
c.) Prepare the journal entry to record the interest received and the amortization for 2008.
d.) Prepare the journal entry to record the interest received and the amortization for 2009.
Click here for the solution: On January 1 2008, Hi and Lois Company purchased 12% bonds having a maturity value of $300,000 for $322,744.44
Wednesday, October 14, 2015
Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011
P 12-1 Securities held-to-maturity; bond investment; effective interest
Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $66 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2011, was $70 million.
Required:
1. Prepare the journal entry to record Fuzzy Monkey's investment on January 1, 2011.
2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2011 (at the effective rate).
3. Prepare the journal entries by Fuzzy Monkey to record interest on December 31, 2011 (at the effective rate).
4. At what amount will Fuzzy Monkey report its investment in the December 31, 2011, balance sheet? Why?
5. How would Fuzzy Monkey's 2011 statement of cash flows be affected by this investment?
Click here for the solution: Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011
Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $66 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2011, was $70 million.
Required:
1. Prepare the journal entry to record Fuzzy Monkey's investment on January 1, 2011.
2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2011 (at the effective rate).
3. Prepare the journal entries by Fuzzy Monkey to record interest on December 31, 2011 (at the effective rate).
4. At what amount will Fuzzy Monkey report its investment in the December 31, 2011, balance sheet? Why?
5. How would Fuzzy Monkey's 2011 statement of cash flows be affected by this investment?
Click here for the solution: Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011
Sunday, September 20, 2015
Contrast these types of bonds
Contrast these types of bonds:
(a) Secured and unsecured.
(b) Convertible and callable.
Click here for the solution: Contrast these types of bonds
(a) Secured and unsecured.
(b) Convertible and callable.
Click here for the solution: Contrast these types of bonds
Jim Thome has prepared the following list of statements about bonds
ACC 291 Week 3 Assignment
E10-8 Jim Thome has prepared the following list of statements about bonds.
1. Bonds are a form of interest bearing notes payable.
2. When seeking long term financing, an advantage of issuing bonds over issuing common stock is that stockholder control is not affected.
3. When seeking long term financing, an advantage of issuing common stock over issuing bonds is that tax savings result.
4. Secured bonds have specific assets of the issuer pledged as collateral for the bonds.
5. Secured bonds are also known as debenture bonds.
6. Bonds that mature in installments are called term bonds.
7. A conversion feature may be added to bonds to make them more attractive to bond buyers.
8. The rate used to determine the amount of cash interest the borrower pays is called the stated rate.
9. Bond prices are usually quoted as a percentage of the face value of the bond.
10. The present value of a bond is the value at which it should sell in the marketplace.
Instructions
Identify each statement above as true or false. If false, indicate how to correct the statement.
Click here for the solution: Jim Thome has prepared the following list of statements about bonds
E10-8 Jim Thome has prepared the following list of statements about bonds.
1. Bonds are a form of interest bearing notes payable.
2. When seeking long term financing, an advantage of issuing bonds over issuing common stock is that stockholder control is not affected.
3. When seeking long term financing, an advantage of issuing common stock over issuing bonds is that tax savings result.
4. Secured bonds have specific assets of the issuer pledged as collateral for the bonds.
5. Secured bonds are also known as debenture bonds.
6. Bonds that mature in installments are called term bonds.
7. A conversion feature may be added to bonds to make them more attractive to bond buyers.
8. The rate used to determine the amount of cash interest the borrower pays is called the stated rate.
9. Bond prices are usually quoted as a percentage of the face value of the bond.
10. The present value of a bond is the value at which it should sell in the marketplace.
Instructions
Identify each statement above as true or false. If false, indicate how to correct the statement.
Click here for the solution: Jim Thome has prepared the following list of statements about bonds
Hrabik Corporation issued $600,000, 9%, 10-year bonds on January 1, 2011, for $562,613
E10-18 Hrabik Corporation issued $600,000, 9%, 10-year bonds on January 1, 2011, for $562,613. This price resulted in an effective-interest rate of 10% on the bonds. Interest is payable semiannually on July 1 and January 1. Hrabik uses the effective-interest method to amortize bond premium or discount.
Instructions
Prepare the journal entries to record the following. (Round to the nearest dollar.)
a) The issuance of the bonds.
b) The payment of interest and the discount amortization on July 1, 2011, assuming that interest was not accrued on June 30.
c) The accrual of interest and the discount amortization on December 31, 2011.
Click here for the solution: Hrabik Corporation issued $600,000, 9%, 10-year bonds on January 1, 2011, for $562,613
Instructions
Prepare the journal entries to record the following. (Round to the nearest dollar.)
a) The issuance of the bonds.
b) The payment of interest and the discount amortization on July 1, 2011, assuming that interest was not accrued on June 30.
c) The accrual of interest and the discount amortization on December 31, 2011.
Click here for the solution: Hrabik Corporation issued $600,000, 9%, 10-year bonds on January 1, 2011, for $562,613
On May 1, 2011, Newby Corp. issued $600,000, 9%, 5-year bonds at face value
P10-3A On May 1, 2011, Newby Corp. issued $600,000, 9%, 5-year bonds at
face value. The bonds were dated May 1, 2011, and pay interest
semiannually on May 1 and November 1. Financial statements are prepared
annually on December 31.
Instructions
a) Prepare the journal entry to record the issuance of the bonds
b) Prepare the adjusting entry to record the accrual of interest on December 31, 2011
c) Show the balance sheet presentation on December 31, 2011.
d) Prepare the journal entry to record payment of interest of May 1, 2012, assuming no accrual of interest from January 1, 2012 to May 1, 2012.
e) Prepare the journal entry to record payment of interest on November 1, 2012
f) Assume that on November 1, 2012, Newby calls the bonds at 102. record the redemption of the bonds.
Click here for the solution: On May 1, 2011, Newby Corp. issued $600,000, 9%, 5-year bonds at face value
Instructions
a) Prepare the journal entry to record the issuance of the bonds
b) Prepare the adjusting entry to record the accrual of interest on December 31, 2011
c) Show the balance sheet presentation on December 31, 2011.
d) Prepare the journal entry to record payment of interest of May 1, 2012, assuming no accrual of interest from January 1, 2012 to May 1, 2012.
e) Prepare the journal entry to record payment of interest on November 1, 2012
f) Assume that on November 1, 2012, Newby calls the bonds at 102. record the redemption of the bonds.
Click here for the solution: On May 1, 2011, Newby Corp. issued $600,000, 9%, 5-year bonds at face value
Sunday, September 13, 2015
The citizen of Spencer County approved the issuance of $2,000,000 in 6 percent general obligation bonds
The citizen of Spencer County approved the issuance of $2,000,000 in 6 percent general obligation bonds to finance the construction of a courthouse annex. A capital projects fund was established for that purpose. The preclosing trial balance of the courthouse annex capital project fund follows:
Trial Balance - December 31, 2012
Debit Credits
Cash $ 1,265,000
Contract payable $ 550,000
Due from state government 200,000
Encumbrances 750,000
Expenditures - capital 1,485,000
Intergovernmental grant 40,000
OFS: premium on bonds 35,000
OFS: proceeds sale of bonds 2,000,000
Budgetary fund balance - 750,000
Reserve for encumbrances Transfer out 35,000
$ 3,735,000 $ 3,375,000
a. Prepare any closing entries necessary at year-end.
b. Prepare a Statement of Revenues, Expenditures, And Changes in Fund Balance for the courthouse annex capital project fund.
c. Prepare a balance sheet for the Courthouse Annex Capital Project Fund, assuming all unexpected resources are restricted to construction of the courthouse annex.
Click here for the solution: The citizen of Spencer County approved the issuance of $2,000,000 in 6 percent general obligation bonds
Trial Balance - December 31, 2012
Debit Credits
Cash $ 1,265,000
Contract payable $ 550,000
Due from state government 200,000
Encumbrances 750,000
Expenditures - capital 1,485,000
Intergovernmental grant 40,000
OFS: premium on bonds 35,000
OFS: proceeds sale of bonds 2,000,000
Budgetary fund balance - 750,000
Reserve for encumbrances Transfer out 35,000
$ 3,735,000 $ 3,375,000
a. Prepare any closing entries necessary at year-end.
b. Prepare a Statement of Revenues, Expenditures, And Changes in Fund Balance for the courthouse annex capital project fund.
c. Prepare a balance sheet for the Courthouse Annex Capital Project Fund, assuming all unexpected resources are restricted to construction of the courthouse annex.
Click here for the solution: The citizen of Spencer County approved the issuance of $2,000,000 in 6 percent general obligation bonds
Sunday, September 6, 2015
On July 1, a city issued, at par, $100 million in percent, twenty year general obligation bonds
6-7 On July 1, a city issued, at par, $100 million in percent, twenty year general obligation bonds. It established a debt service fund to account for resources set aside to pay interest rates. In the year that it issued the debt, the city engaged in the following transactions involving the debt service fund.
1. It estimated that it would make interest payments of $3 million and have interest earnings of $30,000 from investments. It would transfer from the general fund to the debt service fund$2.97 million to pay interest and $500,000 to provide for the payment of principal when the bonds mature. Further, as required by the bond indentures, it would transfer $1 million of the bond proceeds from the capital projects fund to the debt service fund to be held in reserve until the debt matures.
2. Upon issuing the bonds, the city transferred $1 million of the bond proceeds from the capital projects fund. It invested $977,254 of the funds in twenty – year, 6 percent Treasury bonds that had a face value of $1 million. The bond discount of $22,746 reflected an effective yield rate of 6.2 percent.
3. On December 31, the city received $30,000 interest on the Treasury bonds. This payment represented interest for six months. Correspondingly, the market value of the bonds increased by $294, reflecting the amortization of the discount.
4. On the same day the city transferred $2.97 million from the general fund to pay interest on the bonds that it had issued. It also transferred $500,000 for the eventual repayment of principal.
5. Also on December 31, it made its first interest payment of $3 million to bondholders.
a. Prepare appropriate journal entries in the debt service fund, including budgetary and closing entries.
b. The bonds issued by the city pay interest at the rate of 6 percent. The bonds in which the city invested its reserve have an effective yield of 6.2 percent. What might the differences in rates create a potential liability for the city?
Click here for the solution: On July 1, a city issued, at par, $100 million in percent, twenty year general obligation bonds
1. It estimated that it would make interest payments of $3 million and have interest earnings of $30,000 from investments. It would transfer from the general fund to the debt service fund$2.97 million to pay interest and $500,000 to provide for the payment of principal when the bonds mature. Further, as required by the bond indentures, it would transfer $1 million of the bond proceeds from the capital projects fund to the debt service fund to be held in reserve until the debt matures.
2. Upon issuing the bonds, the city transferred $1 million of the bond proceeds from the capital projects fund. It invested $977,254 of the funds in twenty – year, 6 percent Treasury bonds that had a face value of $1 million. The bond discount of $22,746 reflected an effective yield rate of 6.2 percent.
3. On December 31, the city received $30,000 interest on the Treasury bonds. This payment represented interest for six months. Correspondingly, the market value of the bonds increased by $294, reflecting the amortization of the discount.
4. On the same day the city transferred $2.97 million from the general fund to pay interest on the bonds that it had issued. It also transferred $500,000 for the eventual repayment of principal.
5. Also on December 31, it made its first interest payment of $3 million to bondholders.
a. Prepare appropriate journal entries in the debt service fund, including budgetary and closing entries.
b. The bonds issued by the city pay interest at the rate of 6 percent. The bonds in which the city invested its reserve have an effective yield of 6.2 percent. What might the differences in rates create a potential liability for the city?
Click here for the solution: On July 1, a city issued, at par, $100 million in percent, twenty year general obligation bonds
Saturday, August 22, 2015
Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2011
E 12-19 Fair value option; held-to-maturity investments
[This is a variation of Exercise 12-1 focusing on the fair value option.]
Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2011. Company management has the positive intent and ability to hold the bonds until maturity, but when the bonds were acquired Tanner-UNF decided to elect the fair value option for accounting for its investment. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $200 million for the bonds. The company will receive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fair value of the bonds at December 31, 2011, was $210 million.
Required:
1. Would this investment be classified on Tanner-UNF's balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other? Explain.
2. Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2011.
3. Prepare the journal entries by Tanner-UNF to record interest on December 31, 2011, at the effective (market) rate.
4. Prepare any journal entry necessary to recognize fair value changes as of December 31, 2011.
5. At what amount will Tanner-UNF report its investment in the December 31, 2011, balance sheet? Why?
6. Suppose Moody's bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2012, for $190 million. Prepare the journal entry to record the sale.
Click here for the solution: Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2011
[This is a variation of Exercise 12-1 focusing on the fair value option.]
Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2011. Company management has the positive intent and ability to hold the bonds until maturity, but when the bonds were acquired Tanner-UNF decided to elect the fair value option for accounting for its investment. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $200 million for the bonds. The company will receive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fair value of the bonds at December 31, 2011, was $210 million.
Required:
1. Would this investment be classified on Tanner-UNF's balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other? Explain.
2. Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2011.
3. Prepare the journal entries by Tanner-UNF to record interest on December 31, 2011, at the effective (market) rate.
4. Prepare any journal entry necessary to recognize fair value changes as of December 31, 2011.
5. At what amount will Tanner-UNF report its investment in the December 31, 2011, balance sheet? Why?
6. Suppose Moody's bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2012, for $190 million. Prepare the journal entry to record the sale.
Click here for the solution: Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2011
Friday, August 21, 2015
On July 1, 2006, Kingston Satellites issued $3,600,000 face value, 9%, 10-year bonds at $3,375,680
P11-6A On July 1, 2006, Kingston Satellites issued $3,600,000 face value, 9%, 10-year bonds at $3,375,680. This price resulted in an effective-interest rate of 10% on the bonds. Kingston uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest July 1 and January 1.
Instructions
(Round all computations to the nearest dollar.)
(a) Prepare the journal entry to record the issuance of the bonds on July 1, 2006.
(b) Prepare the journal entry to record the accrual of interest and the amortization of the discount on December 31, 2006.
(c) Prepare the journal entry to record the payment of interest and the amortization of the discount on July 1, 2007, assuming that interest was not accrued on June 30.
(d) Prepare the journal entry to record the accrual of interest and the amortization of the discount on December 31, 2007.
(e) Prepare an amortization table through December 31, 2007 (3 interest periods) for this bond issue.
Click here for the solution: On July 1, 2006, Kingston Satellites issued $3,600,000 face value, 9%, 10-year bonds at $3,375,680
Instructions
(Round all computations to the nearest dollar.)
(a) Prepare the journal entry to record the issuance of the bonds on July 1, 2006.
(b) Prepare the journal entry to record the accrual of interest and the amortization of the discount on December 31, 2006.
(c) Prepare the journal entry to record the payment of interest and the amortization of the discount on July 1, 2007, assuming that interest was not accrued on June 30.
(d) Prepare the journal entry to record the accrual of interest and the amortization of the discount on December 31, 2007.
(e) Prepare an amortization table through December 31, 2007 (3 interest periods) for this bond issue.
Click here for the solution: On July 1, 2006, Kingston Satellites issued $3,600,000 face value, 9%, 10-year bonds at $3,375,680
Tuesday, August 18, 2015
On January 1, 2011, Ithaca Corp. purchases Cortland Inc. bonds that have a face value of $150,000
P 12-15 Fair value option; held-to-maturity investments
On January 1, 2011, Ithaca Corp. purchases Cortland Inc. bonds that have a face value of $150,000. The Cortland bonds have a stated interest rate of 6%. Interest is paid semiannually on June 30 and December 31, and the bonds mature in 10 years. For bonds of similar risk and maturity, the market yield on particular dates is as follows:
January 1, 2011 7.0%
June 30, 2011 8.0%
December 31, 2011 9.0%
Required:
1. Calculate the price Ithaca would have paid for the Cortland bonds on January 1, 2011 (ignoring brokerage fees), and prepare a journal entry to record the purchase.
2. Prepare all appropriate journal entries related to the bond investment during 2011, assuming Ithaca accounts for the bonds as a held-to-maturity investment. Ithaca calculates interest revenue at the effective interest rate as of the date it purchased the bonds.
3. Prepare all appropriate journal entries related to the bond investment during 2011, assuming that Ithaca chose the fair value option when the bonds were purchased, and that Ithaca determines fair value of the bonds semiannually. Ithaca calculates interest revenue at the effective interest rate as of the date it purchased the bonds.
Click here for the solution: On January 1, 2011, Ithaca Corp. purchases Cortland Inc. bonds that have a face value of $150,000
On January 1, 2011, Ithaca Corp. purchases Cortland Inc. bonds that have a face value of $150,000. The Cortland bonds have a stated interest rate of 6%. Interest is paid semiannually on June 30 and December 31, and the bonds mature in 10 years. For bonds of similar risk and maturity, the market yield on particular dates is as follows:
January 1, 2011 7.0%
June 30, 2011 8.0%
December 31, 2011 9.0%
Required:
1. Calculate the price Ithaca would have paid for the Cortland bonds on January 1, 2011 (ignoring brokerage fees), and prepare a journal entry to record the purchase.
2. Prepare all appropriate journal entries related to the bond investment during 2011, assuming Ithaca accounts for the bonds as a held-to-maturity investment. Ithaca calculates interest revenue at the effective interest rate as of the date it purchased the bonds.
3. Prepare all appropriate journal entries related to the bond investment during 2011, assuming that Ithaca chose the fair value option when the bonds were purchased, and that Ithaca determines fair value of the bonds semiannually. Ithaca calculates interest revenue at the effective interest rate as of the date it purchased the bonds.
Click here for the solution: On January 1, 2011, Ithaca Corp. purchases Cortland Inc. bonds that have a face value of $150,000
On March 31, 2007, Hanson Corporation sold $5,000,000 of its 8%, 10-year bonds for $4,807,500 including accrued interest
On March 31, 2007, Hanson Corporation sold $5,000,000 of its 8%, 10-year bonds for $4,807,500 including accrued interest. The bonds were dated January 1, 2007. Interest is paid semiannually on January 1 and July 1. On April 1, 2011, Hanson purchased 1/2 of the bonds on the open market at 99 plus accrued interest and canceled them. Hanson uses the straight-line method for amortization of bond premiums and discounts.
(a) What was the amount of the gain or loss on retirement of the bonds?
(b) Prepare the journal entry needed at April 1, 2011 to record retirement of the bonds. Assume that interest and premium or discount amortization have been recorded through January 1, 2011. Record interest and amortization on only the bonds retired.
(c) Prepare the journal entry needed at July 1, 2011 to record interest and premium or discount amortization.
Click here for the solution: On March 31, 2007, Hanson Corporation sold $5,000,000 of its 8%, 10-year bonds for $4,807,500 including accrued interest
(a) What was the amount of the gain or loss on retirement of the bonds?
(b) Prepare the journal entry needed at April 1, 2011 to record retirement of the bonds. Assume that interest and premium or discount amortization have been recorded through January 1, 2011. Record interest and amortization on only the bonds retired.
(c) Prepare the journal entry needed at July 1, 2011 to record interest and premium or discount amortization.
Click here for the solution: On March 31, 2007, Hanson Corporation sold $5,000,000 of its 8%, 10-year bonds for $4,807,500 including accrued interest
On January 1 of the current year, Feller Corporation issued $2,500,000 of 10% debenture bonds on a basis to yield 9%, receiving $2,612,150
On January 1 of the current year, Feller Corporation issued $2,500,000 of 10% debenture bonds on a basis to yield 9%, receiving $2,612,150. Interest is payable annually on December 31 and the bonds mature in 6 years. The effective-interest method is used.
(a) What is the interest expense for the first year?
(b) What is the interest expense for the second year?
Click here for the solution: On January 1 of the current year, Feller Corporation issued $2,500,000 of 10% debenture bonds on a basis to yield 9%, receiving $2,612,150
(a) What is the interest expense for the first year?
(b) What is the interest expense for the second year?
Click here for the solution: On January 1 of the current year, Feller Corporation issued $2,500,000 of 10% debenture bonds on a basis to yield 9%, receiving $2,612,150
On October 1, 2010, Noller Company issued $3,000,000 par value, 10%, 10-year bonds dated July 1, 2010, with interest payable semiannually on January 1 and July 1
On October 1, 2010, Noller Company issued $3,000,000 par value, 10%, 10-year bonds dated July 1, 2010, with interest payable semiannually on January 1 and July 1. The bonds are issued at $3,406,500 (to yield 8%) plus accrued interest. The effective interest method is used.
(a) Prepare the journal entry at the date the bonds are issued.
(c) Prepare the entry for the interest payment on January 1, 2011.
(b) Prepare the adjusting entry at December 31, 2010, the end of the fiscal year.
Click here for the solution: On October 1, 2010, Noller Company issued $3,000,000 par value, 10%, 10-year bonds dated July 1, 2010, with interest payable semiannually on January 1 and July 1
(a) Prepare the journal entry at the date the bonds are issued.
(c) Prepare the entry for the interest payment on January 1, 2011.
(b) Prepare the adjusting entry at December 31, 2010, the end of the fiscal year.
Click here for the solution: On October 1, 2010, Noller Company issued $3,000,000 par value, 10%, 10-year bonds dated July 1, 2010, with interest payable semiannually on January 1 and July 1
Prepare journal entries to record the following transactions related to long-term bonds of Quirk Co
Prepare journal entries to record the following transactions related to long-term bonds of Quirk Co.
(a) On April 1, 2009, Quirk issued $500,000, 9% bonds for $537,868 including accrued interest. Interest is payable annually on January 1, and the bonds mature on January 1, 2019.
(b) On July 1, 2011 Quirk retired $150,000 of the bonds at 102 plus accrued interest. Quirk uses straight-line amortization.
Click here for the solution: Prepare journal entries to record the following transactions related to long-term bonds of Quirk Co
(a) On April 1, 2009, Quirk issued $500,000, 9% bonds for $537,868 including accrued interest. Interest is payable annually on January 1, and the bonds mature on January 1, 2019.
(b) On July 1, 2011 Quirk retired $150,000 of the bonds at 102 plus accrued interest. Quirk uses straight-line amortization.
Click here for the solution: Prepare journal entries to record the following transactions related to long-term bonds of Quirk Co
Monday, August 17, 2015
National Orthopedics Co. issued 9% bonds, dated January 1, with a face amount of $500,000 on January 1, 2011
E 14-10 Issuance of bonds; effective interest; amortization schedule
National Orthopedics Co. issued 9% bonds, dated January 1, with a face amount of $500,000 on January 1, 2011. The bonds mature in 2014 (4 years). For bonds of similar risk and maturity the market yield was 10%. Interest is paid semiannually on June 30 and December 31.
Required:
1. Determine the price of the bonds at January 1, 2011.
2. Prepare the journal entry to record their issuance by National on January 1, 2011.
3. Prepare an amortization schedule that determines interest at the effective rate each period.
4. Prepare the journal entry to record interest on June 30, 2011.
5. Prepare the appropriate journal entries at maturity on December 31, 2014.
Click here for the solution: National Orthopedics Co. issued 9% bonds, dated January 1, with a face amount of $500,000 on January 1, 2011
National Orthopedics Co. issued 9% bonds, dated January 1, with a face amount of $500,000 on January 1, 2011. The bonds mature in 2014 (4 years). For bonds of similar risk and maturity the market yield was 10%. Interest is paid semiannually on June 30 and December 31.
Required:
1. Determine the price of the bonds at January 1, 2011.
2. Prepare the journal entry to record their issuance by National on January 1, 2011.
3. Prepare an amortization schedule that determines interest at the effective rate each period.
4. Prepare the journal entry to record interest on June 30, 2011.
5. Prepare the appropriate journal entries at maturity on December 31, 2014.
Click here for the solution: National Orthopedics Co. issued 9% bonds, dated January 1, with a face amount of $500,000 on January 1, 2011
On February 1, 2011, Strauss-Lombardi issued 9% bonds, dated February 1, with a face amount of $800,000
E 14-11 Bonds; effective interest; adjusting entry
On February 1, 2011, Strauss-Lombardi issued 9% bonds, dated February 1, with a face amount of $800,000. The bonds sold for $731,364 and mature on January 31, 2031 (20 years). The market yield for bonds of similar risk and maturity was 10%. Interest is paid semiannually on July 31 and January 31. Strauss-Lombardi's fiscal year ends December 31.
Required:
1. Prepare the journal entry to record their issuance by Strauss-Lombardi on February 1, 2011.
2. Prepare the journal entry to record interest on July 31, 2011 (at the effective rate).
3. Prepare the adjusting entry to accrue interest on December 31, 2011.
4. Prepare the journal entry to record interest on January 31, 2012.
Click here for the solution: On February 1, 2011, Strauss-Lombardi issued 9% bonds, dated February 1, with a face amount of $800,000
On February 1, 2011, Strauss-Lombardi issued 9% bonds, dated February 1, with a face amount of $800,000. The bonds sold for $731,364 and mature on January 31, 2031 (20 years). The market yield for bonds of similar risk and maturity was 10%. Interest is paid semiannually on July 31 and January 31. Strauss-Lombardi's fiscal year ends December 31.
Required:
1. Prepare the journal entry to record their issuance by Strauss-Lombardi on February 1, 2011.
2. Prepare the journal entry to record interest on July 31, 2011 (at the effective rate).
3. Prepare the adjusting entry to accrue interest on December 31, 2011.
4. Prepare the journal entry to record interest on January 31, 2012.
Click here for the solution: On February 1, 2011, Strauss-Lombardi issued 9% bonds, dated February 1, with a face amount of $800,000
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