10. Jason Gideon, Inc. clo yearon March 1 and September l The bonds were sold to

Question

10. Jason Gideon, Inc. clo yearon March 1 and September l The bonds were sold to yield 8% effective annual in Required: to be paid Gideon, Inc. issued $100,000 of 9% bonds on March 1, 2016, due on March i 2021. The inte year Inc. closes its books annually on December 31. ps you complete the entries, prepare an amortization schedule through March 1, 2016 e se the effective-interest method. Part (a) is not graded. answers to the nearest dollar.) (b) Prepare the entries for 2016 (with dates). Use the effective-interest method. (c) Based on the entries in part (b), indicate the amounts to be reported on the income statement, statement of cash flows, and liabilities section of the balance sheet for 2016. thod (d) Prepare the entry for March 1, 2017. Use the effective-interest me

Explanation / Answer

Value of bond

PVAF at 4% for 10 semiannual period + face value*PVF at 4% at 10 semiannual period

Value of bond

4500*8.1108 + 100000*0.6755

104048.6

PVAF at 4%

1-(1+r)^-n /r

1-(1.04)^-10 / .04

8.1108

pvf at 4% at 10th period

1/(1+r)^10

1/(1.04)^10

0.675564

date

cash paid = 100000*4.5%

interest expense = carrying value*4%

premium amortized

carrying value of premium on bonds payable

bonds payable

carrying value of bonds

mar 1 2016

4048.6

100000

104048.6

Sep 1 2016

4500

4161.944

338.056

3710.544

100000

103710.5

Dec 31 2016

3000

2774.629

225.3707

3485.173

100000

103485.2

mar 1 2017

1500

1387.315

112.6853

3372.488

100000

103372.5

3000 = 100000*4.5%*4/6 1500 = 100000*4.5%*2/6      2774.629 = 103710.5*4%*4/6   1387.315 = 103485.2*4%*2/6

1-Mar

cash

104048.6

bonds payable

100000

premium on bond payable

4048.6

1-Sep

interest expense

4161.944

premium on bond payable

338.056

cash

4500

31-Dec

interest expense

2774.629

premium on bond payable

225.3707

accrued interest expense

3000

B

amount in income statement

interest expense

6936.573

amount in income statement

amount of premium amortized

563.4267

balance shhet

bonds payable

100000

balance shhet

premium on bond payable

3485.173

balance shhet

accrued interest expense

225.3707

cash flow statement

amount of interest paid

7500

cash flow statement

proceeds from issuance of bonds

104048.6

c-

mar 1 2017

interest expense

1387.315

premium on bond payable

112.6853

accrued interest expense

3000

cash

4500

Value of bond

PVAF at 4% for 10 semiannual period + face value*PVF at 4% at 10 semiannual period

Value of bond

4500*8.1108 + 100000*0.6755

104048.6

PVAF at 4%

1-(1+r)^-n /r

1-(1.04)^-10 / .04

8.1108

pvf at 4% at 10th period

1/(1+r)^10

1/(1.04)^10

0.675564

date

cash paid = 100000*4.5%

interest expense = carrying value*4%

premium amortized

carrying value of premium on bonds payable

bonds payable

carrying value of bonds

mar 1 2016

4048.6

100000

104048.6

Sep 1 2016

4500

4161.944

338.056

3710.544

100000

103710.5

Dec 31 2016

3000

2774.629

225.3707

3485.173

100000

103485.2

mar 1 2017

1500

1387.315

112.6853

3372.488

100000

103372.5

3000 = 100000*4.5%*4/6 1500 = 100000*4.5%*2/6      2774.629 = 103710.5*4%*4/6   1387.315 = 103485.2*4%*2/6

1-Mar

cash

104048.6

bonds payable

100000

premium on bond payable

4048.6

1-Sep

interest expense

4161.944

premium on bond payable

338.056

cash

4500

31-Dec

interest expense

2774.629

premium on bond payable

225.3707

accrued interest expense

3000

B

amount in income statement

interest expense

6936.573

amount in income statement

amount of premium amortized

563.4267

balance shhet

bonds payable

100000

balance shhet

premium on bond payable

3485.173

balance shhet

accrued interest expense

225.3707

cash flow statement

amount of interest paid

7500

cash flow statement

proceeds from issuance of bonds

104048.6

c-

mar 1 2017

interest expense

1387.315

premium on bond payable

112.6853

accrued interest expense

3000

cash

4500

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