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ACCT 1A Lecture Notes - Lecture 23: Interest Expense, Book Value

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School
Irvine Valley College
Department
Accounting
Course
ACCT 1A
Professor
urell

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Document Summary

Bonds sell at their par value when buyers are willing to invest in them at the. Ex: company issues 6 percent bonds with a par value of 400,000 and received interest rate stated on the bond. 400,000 cash the bond matures in 10 years, and it can be paid in a single payment of. 400,000 in 10 years or an annuity of 12,000 payable twice each year for 10 years (semi-annually) Present value of the bond: add the pv of the single payment and the pv of the annuity together. On the date of issue, bond liabilities are recorded at the present value of future cash flows. Debit cash 400,000 and credit bonds payable at 400,000. Reporting interest expense on bonds issued at par: Bonds issued at a discount: and credit cash at 12,000 is higher than the stated interest rate offered by the issuer. The amount of interest each period will be ,000= (3% x ,000)

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Related Questions

Bringham Company issues bonds with a par value of $800,000 on their stated issue date. The bonds mature in 10 years and pay 6% annual interest in semiannual payments. On the issue date, the annual market rate for the bonds is 8%. (Table B.1, Table B.2, Table B.3, and Table B.4) (Use appropriate factor(s) from the tables provided.)

What is the amount of each semiannual interest payment for these bonds?
How many semiannual interest payments will be made on these bonds over their life?
Use the interest rates given to select whether the bonds are issued at par, at a discount, or at a premium.
Par (maturity) value Semiannual Rate Semiannual cash interest payment
=
Number of payments
Whether the bonds are issued at par, at a discount, or at a premium?

Compute the price of the bonds as of their issue date.
Table Values are Based on:
n =
i =
Cash Flow Table Value Amount Present Value
Par (maturity) value
Interest (annuity)
Price of bonds

Prepare the journal entry to record the bonds’ issuance.

1- Record the issue of bonds with a par value of $800,000 for cash.

Chekhov Company sold $200,000 of bonds on December 31, 2018. A portion of the amortization table appears below.

Period Cash
Payment
(Credit)		 Interest
Expense
(Debit)		 Discount
on Bonds
Payable
(Credit)		 Discount
on Bonds
Payable Balance
(Debit)		 Bond Payable
Carrying Value
(Credit)
At issue $8,000 $192,000
6/30/2019 $12,000 $12,800 $800 7,200 $192,800
12/31/2019 12,000 12,800 800 6,400 193,600
6/30/2020 ? ? ? ? ?

Required:

1. Determine the stated interest rate on these bonds.
%

On January 1, 2014, Floppy Co. issued 4% bonds with a face valueof $400,000 when the market interest rate was 6%. The bonds are duein ten years, and interest is payable every Januarey 1 and June 30.Floppy does not elect the fair value option for reporting itsfinancial liabilities. Do not provide any journal explanations. Ifno entry is necessary, write "no entry." Round all numbers to thenearest dollar.

Required:

a. Prepare the journal entries for the bond issue on January 1,2014.

b. Prepare the journal entry for the interest payment on June30, 2016.

c. Prepare any required end of 2016 adjusting entry.