1) Cech Corporation issued $800,000 of 8% bonds on October 1, 2010, due on Octob
ID: 2560194 • Letter: 1
Question
1) Cech Corporation issued $800,000 of 8% bonds on October 1, 2010, due on October 1, 2015. The interest is to be paid once a year on October 1. The bonds were sold to yield 10% effective annual interest. Cech Corporation closes its books annually on December 31. On October 1, 2010, Cech will receive:
a) $800,000
b) $778,653
c) $759,616
d) 739,347
2) Cech Corporation issued $800,000 of 8% bonds on October 1, 2010, due on October 1, 2015. The interest is to be paid once a year on October 1. The bonds were sold to yield 10% effective annual interest. Cech Corporation closes its books annually on December 31. On December 31, 2010, Cech will:
a) credit Bonds Payable for $18,484
b) credit Interest Payable for $18,484
c) debit Interest Expense for $16,000
d) credit Discount on Bonds payable for $2,484
Explanation / Answer
Answer 1-d. $739,347 Table Value Based on n= 5 Years i= 10% Cash Flow Amount Present Value Interest - $800,000 X 8% 64,000 242,611 ($64,000 X 3.79079) Principal 800,000 496,736 ($800,000 X 0.62092) Issue Price of Bonds 739,347 Discount on issue of Bonds 60,653 Answer 2-d. Credit Discount on Bonds Payable for $2,484 Journal Entry Date Particulars Dr. Amt. Cr. Amt. 31-Dec-10 Interest Expenses Dr. 18,484 $739,347 X 10% X 3/12 To Interest Payable 16,000 $800,000 X 8% X 3/12 To Discount on Issue of Bonds 2,484 $18,484 - $16,000
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