1. P & P Products issued $1,800,000 of face value bonds onApril 1, 2012. The bonds were sold for $1,908,000. They pay 8%interest each year on December 31st and come due in 10 years fromtheir date of January 1, 2012. The company uses the effectiveinterest methos to amortize any premium or discounts. The marketrate is 6%.
Required: Prepare a bond amortization schedule showing theinterest expense, interest payable/cash, amount of amortization andcarrying value of the bond for the first two years. Prepare entriesfor the issuance of the bonds and payment of interest for 2012 and2013. ( You can disregard years 3-10)
2. On January 1, 2012, P & P Products purchased $1,000,000of the five year, 8% bonds Delta Products in the open market for$960,00. Delta Products is a wholly-owned subsidiary of P & PProducts. THe bonds are dated and were issued by Delta Products onJanuary 1, 2010. The bonds pay interest every January 1st and July1st. The effective interest method is used for amortizationpurposes. The market rate is 10%.
Required: Make any necessary entries on Delta Productsbooks.
1. P & P Products issued $1,800,000 of face value bonds onApril 1, 2012. The bonds were sold for $1,908,000. They pay 8%interest each year on December 31st and come due in 10 years fromtheir date of January 1, 2012. The company uses the effectiveinterest methos to amortize any premium or discounts. The marketrate is 6%.
Required: Prepare a bond amortization schedule showing theinterest expense, interest payable/cash, amount of amortization andcarrying value of the bond for the first two years. Prepare entriesfor the issuance of the bonds and payment of interest for 2012 and2013. ( You can disregard years 3-10)
2. On January 1, 2012, P & P Products purchased $1,000,000of the five year, 8% bonds Delta Products in the open market for$960,00. Delta Products is a wholly-owned subsidiary of P & PProducts. THe bonds are dated and were issued by Delta Products onJanuary 1, 2010. The bonds pay interest every January 1st and July1st. The effective interest method is used for amortizationpurposes. The market rate is 10%.
Required: Make any necessary entries on Delta Productsbooks.
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Related questions
Heathrow issues $2,200,000 of 7%, 15-year bonds dated January 1,2011, that pay interest semiannually on June 30 and December 31.The bonds are issued at a price of $2,692,790. |
| Required: | |
| 1. | Prepare the January 1, 2011, journal entry to record thebonds%u2019 issuance. (Omit the "$" sign in your response.) |
| Date | General Journal | Debit | Credit |
| Jan. 1 | (Click to select)Discount on bonds payableBond interestexpenseAccounts receivableBond interest payableAccountspayablePremium on bonds payableBonds payableCash | ||
| (Click to select)AccountsreceivablePremium on bonds payableBond interest payableAccountspayableBonds payableCashBond interest expenseDiscount on bondspayable | |||
| (Click to select)Premiumon bonds payableCashAccounts payableBond interest expenseBondinterest payableDiscount on bonds payableBonds payableAccountsreceivable | |||
| 2(a) | For each semiannual period, compute the cash payment. (Omit the "$" sign inyour response.) |
| Cash payment | $ |
| 2(b) | For each semiannual period, compute the the straight-line premiumamortization. (Round your answer tothe nearest dollar amount. Omit the "$" sign inyour response.) |
| Amount of premium amortized | $ |
| 2(c) | For each semiannual period, compute the the bond interest expense.(Omit the "$" sign inyour response.) |
| Bond interest expense | $ |
| 3. | Determine the total bond interest expense to be recognized over thebonds' life. (Omit the "$" sign in yourresponse.) |
| Total bond interest expense | $ |
| 4. | Prepare the first two years of an amortization table using thestraight-line method. (Omit the "$" sign in yourresponse.) |
| Semiannual Period-End | Unamortized Premium | Carrying Value |
| 1/01/2011 | $ | $ |
| 6/30/2011 | ||
| 12/31/2011 | ||
| 6/30/2012 | ||
| 12/31/2012 | ||
| 5. | Prepare the journal entries to record the first two interestpayments. (Omit the "$" sign in yourresponse.) |
| Date | General Journal | Debit | Credit |
| June 30 | (Click to select)Premium on bonds payableBond interestpayableDiscount on bonds payableBonds payableBond interestexpenseCashAccounts receivableAccounts payable | ||
| (Click to select)Accounts payablePremium on bondspayableCashDiscount on bonds payableBonds payableBond interestexpenseAccounts receivableBond interest payable | |||
| (Click to select)AccountspayableCashBond interest expenseAccounts receivablePremium on bondspayableBonds payableDiscount on bonds payableBond interestpayable | |||
| Dec. 31 | (Click to select)Bond interest expenseAccountsreceivableDiscount on bonds payablePremium on bonds payableCashBondinterest payableAccounts payableBonds payable | ||
| (Click to select)Premium on bonds payableAccountsreceivableBond interest payableAccounts payableDiscount on bondspayableBond interest expenseBondspayableCash | |||
| (Click to select)AccountsreceivableAccounts payableDiscount on bonds payableCashBondinterest expenseBond interest payablePremium on bonds payableBondspayable | |||
On February 1, 2016, Cromley Motor Products issued 6% bonds,dated February 1, with a face amount of $80 million. The bondsmature on January 31, 2020 (4 years). The market yield for bonds ofsimilar risk and maturity was 8%. Interest is paid semiannually onJuly 31 and January 31. Barnwell Industries acquired $80,000 of thebonds as a long-term investment. The fiscal years of both firms endDecember 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1and PVAD of $1) (Use appropriate factor(s) from the tablesprovided.)
| Required: | |
| 1. | Determine the price of the bonds issued on February 1, 2016.(Enter your answer in whole dollars.) |
| 2.1 | Prepare amortization schedules that indicate Cromleyâs effectiveinterest expense for each interest period during the term tomaturity. (Enter your answers in wholedollars.) |
| 2.2 | Prepare amortization schedules that indicate Barnwellâseffective interest revenue for each interest period during the termto maturity. (Enter your answers in wholedollars.) |
| 3. | Prepare the journal entries to record the issuance of the bondsby Cromley and Barnwellâs investment on February 1, 2016.(If no entry is required for a transaction/event, select"No journal entry required" in the first account field. Enter youranswers in whole dollars.) |
|
Record the Bond investment by Barnwell. |
