Issuance of a Bond at Face Value
On January 1, 2014, Whitefeather Industries issued 1,600 $1,000 face value bonds. The bonds have a(n) five-year life and pay interest at the rate of 8%. Interest is paid semiannually on July 1 and January 1. The market rate of interest on January 1 was 8%. Use the present value tables that may be found by clicking on the Present Value button.
Required:
1. Calculate the issue price of the bonds and record the issuance of the bonds on January 1, 2014.
Round your answer to the nearest $1,000. For example, $296,987 would be entered as $297,000.
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Identify and analyze the effect of the issuance of the bonds on January 1, 2014.
Activity - Select your answer -OperatingInvestingFinancingInvesting and FinancingCorrect 1 of Item 2 Accounts - Select your answer -Cash Increase, Bonds Payable IncreaseCash Increase, Bonds Payable DecreaseCash Decrease, Bonds Payable IncreaseCash Decrease, Bonds Payable DecreaseCorrect 2 of Item 2 Statement(s) - Select your answer -Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementCorrect 3 of Item 2
How does this entry affect the accounting equation?
If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.
Balance Sheet Income Statement Assets = Liabilities + Stockholders' Equity Revenues â Expenses = Net Income - Select your answer -Accounts ReceivableBonds PayableCashInvestment in BondsRestricted CashNo EntryCorrect 1 of Item 3 - Select your answer -Accounts PayableBonds PayableCashFinancing RevenueStockholders EquityNo EntryCorrect 3 of Item 3 - Select your answer -Accounts PayableBonds PayableCashFinancing RevenueStockholders EquityNo EntryCorrect 6 of Item 3 - Select your answer -Accounts ReceivableBonds PayableCashInvestment in BondsRestricted CashNo EntryCorrect 8 of Item 3
2. How would the issue price have been affected if the market rate of interest had been higher than 8%.
- Select your answer -Bonds would be issued at a discount.Bonds would be issued at a premium.Bonds would be issued at face value.Indeterminable without more information.Correct 1 of Item 4
3. Identify and analyze the effect of the payment of interest on July 1, 2014.
Activity - Select your answer -OperatingInvestingFinancingInvesting and FinancingCorrect 1 of Item 5 Accounts - Select your answer -Cash Increase, Interest Expense IncreaseCash Increase, Interest Expense DecreaseCash Decrease, Interest Expense IncreaseCash Decrease, Interest Expense DecreaseCorrect 2 of Item 5 Statement(s) - Select your answer -Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementCorrect 3 of Item 5
How does this entry affect the accounting equation?
If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.
Balance Sheet Income Statement Assets = Liabilities + Stockholders' Equity Revenues â Expenses = Net Income - Select your answer -Bond ExpenseBond PayableCashInterest ExpenseInterest PayableNo EntryCorrect 1 of Item 6 - Select your answer -Accounts PayableBond ExpenseCashInterest ExpenseInterest PayableNo EntryCorrect 3 of Item 6 - Select your answer -Accounts PayableBond ExpenseCashInterest ExpenseInterest PayableNo EntryCorrect 6 of Item 6 - Select your answer -Bond ExpenseBond PayableCashInterest ExpenseInterest PayableNo EntryCorrect 8 of Item 6
4. Calculate the amount of interest accrued on December 31, 2014. If required, round your answer to the nearest dollar.
$
Issuance of a Bond at Face Value
On January 1, 2014, Whitefeather Industries issued 1,600 $1,000 face value bonds. The bonds have a(n) five-year life and pay interest at the rate of 8%. Interest is paid semiannually on July 1 and January 1. The market rate of interest on January 1 was 8%. Use the present value tables that may be found by clicking on the Present Value button.
Required:
1. Calculate the issue price of the bonds and record the issuance of the bonds on January 1, 2014.
Round your answer to the nearest $1,000. For example, $296,987 would be entered as $297,000.
$
Identify and analyze the effect of the issuance of the bonds on January 1, 2014.
| Activity | - Select your answer -OperatingInvestingFinancingInvesting and FinancingCorrect 1 of Item 2 |
| Accounts | - Select your answer -Cash Increase, Bonds Payable IncreaseCash Increase, Bonds Payable DecreaseCash Decrease, Bonds Payable IncreaseCash Decrease, Bonds Payable DecreaseCorrect 2 of Item 2 |
| Statement(s) | - Select your answer -Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementCorrect 3 of Item 2 |
How does this entry affect the accounting equation?
If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.
| Balance Sheet | Income Statement | |||||||||||||
| Assets | = | Liabilities | + | Stockholders' Equity | Revenues | â | Expenses | = | Net Income | |||||
| - Select your answer -Accounts ReceivableBonds PayableCashInvestment in BondsRestricted CashNo EntryCorrect 1 of Item 3 | - Select your answer -Accounts PayableBonds PayableCashFinancing RevenueStockholders EquityNo EntryCorrect 3 of Item 3 | - Select your answer -Accounts PayableBonds PayableCashFinancing RevenueStockholders EquityNo EntryCorrect 6 of Item 3 | - Select your answer -Accounts ReceivableBonds PayableCashInvestment in BondsRestricted CashNo EntryCorrect 8 of Item 3 | |||||||||||
2. How would the issue price have been affected if the market rate of interest had been higher than 8%.
- Select your answer -Bonds would be issued at a discount.Bonds would be issued at a premium.Bonds would be issued at face value.Indeterminable without more information.Correct 1 of Item 4
3. Identify and analyze the effect of the payment of interest on July 1, 2014.
| Activity | - Select your answer -OperatingInvestingFinancingInvesting and FinancingCorrect 1 of Item 5 |
| Accounts | - Select your answer -Cash Increase, Interest Expense IncreaseCash Increase, Interest Expense DecreaseCash Decrease, Interest Expense IncreaseCash Decrease, Interest Expense DecreaseCorrect 2 of Item 5 |
| Statement(s) | - Select your answer -Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementCorrect 3 of Item 5 |
How does this entry affect the accounting equation?
If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.
| Balance Sheet | Income Statement | |||||||||||||
| Assets | = | Liabilities | + | Stockholders' Equity | Revenues | â | Expenses | = | Net Income | |||||
| - Select your answer -Bond ExpenseBond PayableCashInterest ExpenseInterest PayableNo EntryCorrect 1 of Item 6 | - Select your answer -Accounts PayableBond ExpenseCashInterest ExpenseInterest PayableNo EntryCorrect 3 of Item 6 | - Select your answer -Accounts PayableBond ExpenseCashInterest ExpenseInterest PayableNo EntryCorrect 6 of Item 6 | - Select your answer -Bond ExpenseBond PayableCashInterest ExpenseInterest PayableNo EntryCorrect 8 of Item 6 | |||||||||||
4. Calculate the amount of interest accrued on December 31, 2014. If required, round your answer to the nearest dollar.
$
Related questions
| P10-2 Reporting Bonds Issued at Par LO 10-2 | |||||||||
| On January 1, 2014, Nowell Company issued $500,000 in bonds that mature in five years. The bonds have a stated interest rate | |||||||||
| of 8 percent and pay interest on June 30 and December 31 each year. When the bonds were sold, the market rate of interest was 8 percent. | |||||||||
| (If necessary, use the appropriate factor(s) from the tables provided.) ( | FV of $1 | PV of $1 | FVA of $1 | PVA of $1 | ) | ||||
| Required: | |||||||||
| 1 | What was the issue price on January 1, 2014? | ||||||||
| Issue price | |||||||||
| 2 | What amount of interest expense should be recorded on (a) June 30, 2014? and (b) December 31, 2014? | ||||||||
| June 30, 2014 | December 31, 2014 | ||||||||
| Interest expense | $20,000 | ||||||||
| 3 | What amount of cash interest should be paid on (a) June 30, 2014? and (b) December 31, 2014? | ||||||||
| June 30, 2014 | December 31, 2014 | ||||||||
| Cash paid | |||||||||
| 4 | What is the book value of the bonds on (a) December 31, 2014? and (b) December 31, 2015? | ||||||||
| December 31, 2014 | December 31, 2015 | ||||||||
| Bonds payable | |||||||||
