Can-Ed University, which is owned by a group of Canadian universities and colleg
ID: 2550619 • Letter: C
Question
Can-Ed University, which is owned by a group of Canadian universities and colleges, issued bonds to finance the construction of an overseas campus in China. Can-Ed issued 6% 20-year bonds with a face value of $110,000,000. The bonds will pay interest semi-annually.
iii.5.5% (issued at 106.02)
Prepare the journal entry Can-Ed would record at the time of the issuance of the bonds under each of the alternative yields. Also prepare the journal entries to record the interest expense for the first two periods under each alternative
i. 6% (issued at par) ii. 6.5% (issued at 94.448)iii.5.5% (issued at 106.02)
Prepare the journal entry Can-Ed would record at the time of the issuance of the bonds under each of the alternative yields. Also prepare the journal entries to record the interest expense for the first two periods under each alternative
Explanation / Answer
JOURNAL ENTRIES Accounts title and explanations Debit $ Credit $ Case-1 For issue Cash Account Dr. 110,000,000 6% Bonds payable 110,000,000 Interest payments: Interest on Bonds payable Dr. (110,000,000*6%/2) 3,300,000 Cash Account 3,300,000 Interest on Bonds payable Dr. 3,300,000 Cash Account 3,300,000 Case-2 For Issue Cash Account Dr. 103892800 Discount on Bonds payable (1100000*5.552) 6107200 6% bonds payable 110,000,000 Interest payments: Interest on bonds payable Dr. 3452680 Cash Account (110,000,000*6%/2) 3300000 Discount on bonds payable (610,7200/40) 152680 Interest on bonds payable Dr. 3452680 Cash Account (110,000,000*6%/2) 3300000 Discount on bonds payable (610,7200/40) 152680 Note: In the absence of information, Straight line amortization method is followed. Case-3 For Issue Cash Account Dr. 116622000 6% bonds payable 110000000 Premium on bonds payable 6,622,000 Interest payments: Interest on bonds payable Dr. 3,134,450 Premium on bonds payble (6622000/40) 165550 Cash Account 3,300,000 Interest on bonds payable Dr. 3,134,450 Premium on bonds payble (6622000/40) 165550 Cash Account 3,300,000
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