Rayco Corporation had the following bond transactions during the fiscal year 201
ID: 2484395 • Letter: R
Question
Rayco Corporation had the following bond transactions during the fiscal year 2014: On January 1: issued ten $1,000 bonds at 102. The 5-year bonds is dated January 1, 2014. The contract interest rate is 6%. Straight-line amortization method is used. Interest is payable semi-annual on January 1 and July 1. On July 1: Rayco Corporation issued $500,000 of 10%, 10-year bonds. The bonds dated January 1, 2014 were issued at 88.5, and pay interest on July 1 and January 1. Effective interest rate for these bonds is 12%. Straight-line amortization method is used. On October 1: issued 10-year bonds $10,000 face value bonds, for $10,853 cash. The bonds have a stated rate of 9%, but an effective rate of 6%. Straight-line amortization method is used. Interest is payable on October 1 and April 1.Explanation / Answer
a)
Entry for issue:
Cash.....................(10*1020)......................10,200
Premium on Bonds payable............................... 200
Bonds payable.................................................10,200
Entry for payment of interest on July 1, 2014.
Interest Expense.......................(10000*0.03-200/10)....280
Premium on bonds payable..........................(200/10).... 20
Cash...........................................................................300
Entry for accruing interest on December 31, 2014
Interest Expense.......................(10000*0.03-200/10)....280
Premium on bonds payable..........................(200/10).... 20
Interest payable...............................................300
b)
For issue of the bonds on July 1, 2014.
Cash........................................................467,500
Discount on bonds payable..................... 57,500
Bonds payable........................................................500,000
Interest payable...................................................... 25,000
For payment of interest collected
Interest payable.......................................25,000
Cash..........................................................25,000
Entry for December 31, 2014 to accrue interest payable.
Interest expense.....................................................28,026
Discount on bonds payable............(57500/19)................... 3,026
Interest payable...................................................................25,000
c)
Journal entry for issue of bonds on October 1, 2014:
Cash...............................................10,853
Premium on bonds payable.......................853
Bonds payable.....................................10,853
Journal entry to record accrual of interest for 3 months as onDecember 31, 2014.
Interest expense...................................................................211
Premium on bonds payable..........................(853/20*3/6).... 14
Interest payable(10000*0.09*3/12)..........................................225
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